Multi-State Tax Returns

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I get many calls from people who prepared their own returns with two or more states and they all say something pretty similar, “I did the return, the federal is okay but the state just doesn’t seem right.”  Then I ask, “Do you owe way more than you think you should?”  “Yes, how did you know?”  I do this for a living.  The quick answer is to check to see if you took a “credit for taxes paid to another state”, that’s usually where the problem is.

 

Normally, I would have put that at the end of the blog post, but it’s such a common problem that I figured it needed to go first.  Quick answer and you’re done.  If you need more information, I’ll start from the beginning.

 

Two states can usually be handled by most of the major tax software companies with no problem.  Remember the credit for taxes paid to another state and you should be good.  On the other hand, three or more states can send your software into a tizzy.  Even with my professional grade software, I still have to compute numbers by hand and manually input them into the program.  If you’re dealing with three or more states, spend the money on a professional.  It’s a good idea to ask, “Have you ever done a California return before?”  (Or Ohio, or North Carolina, or whatever.)  Experience helps.

 

Back to the two states:  There are two situations where you could have two state returns.  One would be you moved from one state to another, for example moving from Indianapolis to Chicago for a job.   The other would be where you live in one state but work in a different state, for example living in St. Louis, Missouri but working across the river in Alton, Illinois.  These two types of situations use different forms.

 

Moving:  When you move from one state to another, you’ll be filing your two state returns as a “part-year resident”.  You’ll be completing paperwork that says how long you lived in the state, what your earnings were for the state, etc.  You should only be taxed on the income that you earned while you lived and work in the state.  If you withheld properly, your taxes should come out normal, no big refunds, nor big balance dues.  Most of the time in a case like this, you won’t be filing a “credit for taxes paid to another state” because the “part year resident” return will handle you income allocations.  (Most of the time—there’s 50 states and they all have different rules, so in some cases you’ll still be doing the credit for taxes paid to another state.)

 

Living in one state and working in another:  this situation is a little different.  You will be a “resident” of the state you live in and a “non-resident” of the state you work in.  The state you work in is the state your company is going to withhold taxes from.  But the state you live in is going to tax your income too.  This is where it’s really important to remember the credit for taxes paid to another state, because if you miss taking that credit your tax bill could be enormous.  Sometimes, the tax bill is still pretty large even when you’ve done everything right.  For example, here in Missouri our state income tax rate is 6%.  Next door in Illinois it’s 3% (although it’s moving up to 5% this year.)  If you live in Missouri and work in Illinois, you’re going to get hit with a pretty harsh state tax bill unless you had Missouri taxes withheld or paid estimated taxes.

 

Here’s some other tips that will help you with your multi-state return:

1.  Always do the federal return first.  Don’t start the state returns until the federal is done and you feel that it’s correct.  If you have to go back and make changes to the federal, your state numbers will be off.

2.  Non-resident income:  that’s wages that you were paid in a state you didn’t live in.  It also includes self-employment performed in the state.

3.  Resident income:  the state you live in will tax everything, in addition to your wages, it will tax your pension, interest, investment income, everything.

4.  Moving expense deduction-always goes to the state that you moved to, not the state that you moved from.

This is a pretty quick and dirty summary of multistate tax returns.  If these tips don’t solve your problem, do call and get some help.  They’re not always easy to handle.

836 thoughts on “Multi-State Tax Returns

  1. Hi Jan,
    My husband is a consultant working (Mon-Thurs) on various client assignments in different states and then home and works in the Seattle office on Friday (no state tax in Washington). I’m considering moving myself and our two children to North Carolina to be closer to family, but wondering if this will require us to file taxes in North Carolina? My husband will continue to travel Monday-Thursday and rent an apartment in Seattle. If I will not be working in North Carolina, will we need to file a tax return in NC? My husband’s firm requires him to live in Seattle and will have to remain here until he is able to request a transfer. Thanks for any insights and feedback you can provide! Thanks – Kim

  2. Hi Jan – I worked and lived in CA last year. I then quit my job and moved to Idaho on 12/24. So, I would be a full year resident in Idaho for the current year. After quitting my job in CA last year, I received my final paycheck in January. If I fill out a full year resident return for Idaho and a nonresident return for CA, both States are taxing this check. I understand that there is an Idaho credit for taxes paid to another state, but Idaho is taxing me more on this money (includes regular pay and severance) then CA is. How can this be when I lived and worked in CA at the time this money was earned? Should I be filling out a part-year resident return in both States to solve this problem?

  3. Hi again Jan – Just wanted to clarify…I am working on my 2014 return. The wages from CA were earned while living and working in CA in 2013. Then I moved to Idaho 12/24/13. I did Part Year Resident Returns for both Idaho and CA in 2013. I then received the CA December 2013 wages in January 2014 while a resident of Idaho. I also worked all of 2014 in Idaho as an Idaho resident. So I have income from both States requiring me to file returns in both States. It’s the paycheck that crossed calendar years that is throwing me for a loop. It doesn’t seem logical that Idaho would tax me on these wages I earned while I was living and working in another State. Any advice you are able to provide would be greatly appreciated! Thank you…Betsy.

  4. Hi Jan,
    Great article. My question involves investment income, not ordinary income. I just found out that I should have been filing state returns in multiple states other than my own (4 others to be precise) for income earned from a real estate fund (limited partnership). I am a limited partner and have only been filing in my home state (with turbotax). I didn’t realize I was responsible for filing in each state that the fund was active. It’s been 5 years and I have not heard from the other states (AZ, CO, CA, NY and VA) and I’ve paid the full tax in my home state (NC).

    My question is, should I just start reporting correctly on my next return or should I go back and amend my returns going back several years? Will the states come after me since the LP filed a K-1 in each of the states. The fund didn’t pay nonresident withholding payments or file a composite return. Should I start fresh going forward, or go back and amend all my prior returns, or hire a CPA to do it all for me. Do you have any advice? Thanks!

  5. Hi Jan,
    I just found out that I should have been filing state returns in multiple states other than my own (4 others to be precise) for income earned from a real estate fund (limited partnership). I am a limited partner and have only been filing in my home state (with turbotax). I didn’t realize I was responsible for filing in each state that the fund was active. It’s been 5 years and I have not heard from the other states (AZ, CO, CA, NY and VA) and I’ve paid the full tax in my home state (NC).

    My question is, should I just start reporting correctly on my next return or should I go back and amend my returns going back several years? Will the states come after me since the LP filed a K-1 in each of the states? The fund didn’t pay nonresident withholding payments or file a composite return. Should I start fresh going forward, or go back and amend all my prior returns, or hire a CPA to do it all for me. Help, I’m over my head. Do you have any advice? Thanks!

  6. Hi Jan
    I live in CA, but I belong to a “crowdfunding investments of real estate” (renovation/new construction, etc) most investments are around Atlanta, GA and surrounding areas. The site told me they will use the 1099OID for tax purpose, do I need to pay income taxes in Georgia? And if I do have to (pay Georgia income tax) can I deduct it from my CA income tax return or does this happen automatically, Is this action complicated or is it fairly routine.
    Thank you very much
    Steve S

  7. Hi Jan!

    I think I may have a special circumstance but I would love some clarification;

    I was a Florida resident up until this past April, I moved at the end of April to Nebraska, as you may know Florida does not collect state income taxes, but Nebraska does! How am I supposed to file my income taxes come tax season? I never had to file State taxes in florida, so will I file similarly, except I will file a state income tax for my new job?

    Thank you in advance

  8. Hi Kim L,
    I believe that your husband’s tax home would still be Seattle because he will still maintain his residency there. But, if you were to get a job or have any kind of taxable income, your tax home would be North Carolina. Things like interest, dividends, stocks, and pensions are all taxed to the state you live in, so if you have any of that type of income in your name, that would be taxed in North Carolina.
    It’s very common these days for a husband and wife to have two different tax homes. So while it may be difficult for you to be apart, it’s not all that rare. You do want to make sure that he maintains a Washington state residence, keep his driver’s license and tags there. Keep the apartment. Vote.
    And most importantly, when you file your federal tax return, the Washington address is the one you use on the return. That way, the IRS doesn’t send a copy of your tax return to North Carolina. That’s what would raise the red flag to NC is having the NC address on your tax return. You could prove the Washington state residency, but why pull the trigger on the audit if you don’t have to? So be sure to use the Washington state address on your federal tax return.

  9. Hi Betsy,
    I would have told you to just do a part year return for CA for those wages, but you’ve already done a part-year resident for Idaho for 2013. How much money did you make in Idaho between December 24th and the 31st? Had you done a full year California return, I would have just said do a part year for 2014. But the fact that you’ve already claimed Idaho residency for 2013 sticks you with claiming it for 2014 as well.

  10. Hi Mawk,
    You’ve got a mulit-state limited partnership for real estate. Oh fun! These can be a pain in the backside on taxes, but usually, it’s not as bad as it seems. (Although it’s probably a good idea to get some professional help the first go round at least.)
    The important thing is to determine if you need to file a return in the state or not. It helps to have a guide, this is my favorite: http://www.thetaxbook.com/
    Usually, the minimum filing requirement for a resident state is the same as for a federal return. But for a non-resident, the filing requirments vary. That’s why you’re going to either want to buy a guide, or look it up on the individual states websites. For example: if you had income in Utah – all non resident income is reportable on a Utah tax return – except–if the only Utah income you have is on a K1. Different states have different rules so you’ll need to look up those states.
    Some of the income on your K1 might only be $1 or $2 – and often you wouldn’t have a filing requirement. The more you earn in a state, the more likely you are to have to file.
    If you find that you do have a filing requirement, I’d go back and file the old returns for the past three years If you owe money in any of the states, I’d file as far back as you have balance dues (because they can always come after you for a balance due.) If you don’t owe with your filings, I’d just drop if after three years. I don’t expect any state to come after you for a zero balance due.

  11. Hi Steve,
    It seems like it’s real estate investment day here. Your situation is completely different from Mawk. While he has a K1 and will have to report income in several states, your investment is issued as OID (Original Issue Discount) investment interest.
    Interest is taxed to your resident state. Since OID is reported as interest on your federal tax return, you will be reporting the OID to California and not to Georgia.

  12. Hi Jillian,
    Your federal tax return will remain the same as always. You will file a part-year return for Nebraska for the end of April through December 31. That’s all there is to it.
    I always recommend getting some professional help with your taxes when you move to a new state. Every state has different tax rules and it helps to hire someone local who knows what those rules are. The tax software is helpful and good for many things, but it’s the little quirks that you’ll never catch if you don’t know to look for them. It’s worth the money for the peace of mind.

  13. My daughter moved to Kansas from Missouri in February for work. She has maintained her Missouri drivers license as she hopes to move back soon. Does keeping the Missouri license cause any income tax issues? Will she need to file partial income taxes in Kansas and Missouri?

    Thank you.

  14. Hi Steve,
    Your daughter should file a part year Missouri and a part year Kansas return. Her driver’s license won’t cause her a tax issue.

    Well, it won’t cause a tax issue with the states. If she’s filing to get her refund through one of those payment companies, like where you pay to have your taxes done and they withhold the tax prep fees from the refund like at H&R Block–the driver’s license could be a problem because it won’t match her address. But she avoids that problem by filing her own or just paying the fee up front.

  15. Hi Jan,

    My daughter was a resident of Texas and earned income and paid taxes for that income. However, on her tax return she put her “mailing address” in North Carolina. She now is being taxed by the State of North Carolina for what she already paid to the State of Texas – this is over 5 years ago. She has provided proof to the State of North Carolina that she did reside in that state, went to school full-time, had utility bills, had her child, etc., all int he State of Texas during the time period in question and that the NC address was just a mailing address and that she was not a resident They now have sent her to collections even though she was working with them to get this matter resolved. Any help you can provide would be much appreciated it.

  16. Hi Mary,
    This is usually easy, but with a no-tax state, it’s harder. You can’t send NC a copy of the Texas tax return–that would have been the easy answer.
    Let me ask you this: are YOU a resident of NC? I’m guessing yes. Was your daughter a college student? Did you claim her on your taxes that year? If you claimed your daughter, then she really is a NC resident and she should pay.
    But, your daughter had a daughter, so maybe she really was a full-fledged adult with a residency in Texas. You say she provided proof with utility bills, etc. But, she was a student. So, to prove residency, how about voter registration, or driver’s license?
    The big issue here is that she was a student using what I guess is her parent’s address. That implies that she wasn’t a true Texan. What about her tuition rate? Did Texas grant her a resident status on her tuition?
    You’ve got a tougher job to prove her Texas residency. The part about going to school full-time kind of hurt her chances of proving she was a Texas resident. If she was an undergraduate student, then that pretty much proves she wasn’t. Also, if she used the NC address on the next year’s return, I’d give up and pay NC immediately because then you’ve just lost the case.

  17. Hi Jan,

    My husband and I relocated from NH to NY this year. Your article answers a lot of questions about this move, so thanks! There is one thing I’m hoping to get clarified. While I switched jobs when we moved, my husband continued to work the same job remotely for a few more months, until he got a NY job in December. How do I handle this when filing taxes?

  18. Hi Megan,
    The thing to do is to be a part year resident of NH and a part year resident of NY. Your job will be easy as your W2s will reflect exactly what was earned in each state. Ideally, your husband’s company also allocated his income, but they might not have. Technically, the income he earned while working remotely from NH should be taxed to NH. And the income he earned while in NY is taxed to NY.

  19. I lived and still work in NYC, but in March I bought a house in NJ. Due to renovation and other issues, i didnt move to NJ until December, and changed my work paystub address to NJ in December. I know i have to report PT resident & non-resident for both NJ & NY but how do i allocate the # of days living in NJ? Am I considered a NJ Resident starting from my NJ home closing date or when I physically moved which was December 10th. Or can I just get away with filing NY and start the change with the 2016 tax return?
    Thank you for your help and I apologize for so many questions.

  20. I got married and my wife paid taxes in Puerto Rico, we live in Florida, can we file in Florida and get credit for what she paid in Puerto Rico

  21. So I moved from NJ to GA and transferred with my employer. Long story short, I continued to be taxed in NJ even though I updated my address and licenses because I failed to submit a G-4 form. I just submitted one today and they will reverse the taxes from my first pay period but I am on my own the for 6 Months of 2015.

    What am I looking at having to do and is it something that only a professional can assist with?

    Thanks!

  22. I am a full time college student
    In 2014 I was claimed as a dependent on my parents Illinois tax return.
    They cannot claim me in 2015 – but I am still a full time college student all year.
    During 2015 I spent 8+ months in college in Indiana (no income)
    I spent 3 months as a summer intern living and working in Seattle, Washington – $22,000 of income
    I spent less than one month (visiting my parents) in Illinois (no income)
    How do I file my state taxes in 2015?

  23. Hi Ben,
    I’d double check with a New Jersey preparer to be on the safe side. In my opinion, technically you did live in NJ for 21 days. I’d file using the time you actually did live in NJ. But like I said, double check with a New Jersey preparer. States have little nuances that non-locals just don’t get. She might recommend you claim NJ starting from March, or she might even just have you file NY only. It’s worth getting a second opinion.

  24. Hi Jose,
    Gosh, I haven’t worked on a Puerto Rico return in years! But I think I’m still okay here. There is no state income tax in Florida so you won’t file a Florida tax return, only a US tax return. You will be able to claim a foreign tax credit on the taxes paid to Puerto Rico on form 1116. Yes, Puerto Rico is a US Territory, but you still get to count it as foreign for the tax credit. I double checked because like I said, it’s been a long time since I’ve had to deal with it. Here’s a link to the IRS website for proof: https://www.irs.gov/Individuals/International-Taxpayers/What-Foreign-Taxes-Qualify-For-The-Foreign-Tax-Credit%3F

  25. Hi David,
    Basically, you will have overpaid your NJ taxes, and underpaid your GA taxes. File part year NJ and part year GA. You might want to wait for NJ to refund your overpayment before filing your GA where you will mail in a check. If you’re pretty good with taxes in general, you won’t need a professional- it’s really just a matter of an overpayment and an underpayment. If you’re feeling unsure, then of course get professional help.

  26. Hi Steve,
    So I’m thinking that you live in Indiana, then you work in Washington, then you go back to Indiana, right? So the proper way to file is, Indiana resident, Washington non-resident. But Washington has no state income tax so no tax return. That makes all of your Washington state income taxable in Indiana. (Illinois is moot since you are no longer a resident and your visit was just a vacation to see your parents.)

    That said, you may be able to claim your expenses of living in Washington as temporary job location expenses – meaning you may be able to write off your rent, your food, and your travel expenses. It would go on a form 2106 which is part of Schedule A.

  27. I have lived in Michigan since my retirement in 2009. My pension is Cal-PERS. I filed both state taxes for 2009 which was the year I moved. The State of California sent me a letter stating I owe taxes for 2014????

    The state also thinks I resided in California in 2014… but I can’t get any info about why California thinks that or why 2014 is the only year requested.

    Do I need to go backward and file state taxes for California from 2010 to present?

  28. Hi Vincent,
    Retirement benefits are taxed to the state you live in, not the state they were earned in. You should not have to go back and file California state taxes for back years.

    That said, California has different tax laws from most of the other states in the union – so you should double check my answer with a California licensed preparer. California has been very aggressive with their budget and income recently so there could be legislation that I just don’t know about. But- it wouldn’t go back to 2010 – it would be recent if anything.

    That said, most likely, there’s probably just a little glitch that needs to be worked out. Since you live in Michigan and file a Michigan income tax return, that’s probably all CA needs to see to sort this mess out.

    If I am totally wrong and you are required to pay tax to CA on your CAL-PERS pension even though you no longer live in the state, would you mind coming back and posting that? I couldn’t find anything that said you did. I’m sure other people would like to know that too. Thank you.

  29. Hi Jan,
    I have a 24 yr. old college student staying with me for the summer who lives in Puerto Rico. He will be working here for approximately 7 weeks and making around 2500.00. How do we handle the state and Federal taxes?
    Thank you

  30. Hi Cindy,
    Wow. Okay, so normally a person from Puerto Rico is a US Citizen. But, while in Puerto Rico, Puerto Rican income isn’t taxed in the US on a US 1040 return. But, since your student will be working in the US, he will be subject to US income tax and a regular 1040. But, the $2500 that he’ll make will be below the filing threshold so if that’s his only US source income, then I wouldn’t even worry about it. It won’t be taxable so I could just claim exempt for him.

    On the other hand, state income for a non-resident is usually taxable. Depending upon the state, he could have to pay something, so you may need to do some withholding there. You can look up the filing requirements for a non-resident for your state to determine if he’ll need to file. If not, then I’d claim exempt there too.

  31. Jan – Quick question: Different scenario on the 2-State / Multi-State Tax return issue = I live and work (home based office) in Ohio in a sales position, but the small company I work for is Illinois based. Since they are not ‘incorporated’ etc. in OHIO, they withheld IL tax and issued me an IL State W-2. I filed both an Ohio tax return and also the IL-1040 with the NR (non-resident) schedule. Am I liable for IL tax since I did not live or work in that state?? IL is giving me the run around and have not refunded the withholding I had in 2015 yet.

  32. Hi Bob,
    Yours is always a fund situation. You did the right thing. You filed the IL 1040 NR – that’s the right thing to do, and they should refund your withholding. Although Illinois does not ask for the other state return, I’m guessing that you’ll need to send your Ohio return to IL in order to get them to release the funds.

  33. 1) Is attending conferences in various states a taxable event? Are taxes due is states where you attend conferences?
    2) Is a meeting with a government official considered paid work if you are an employee of a company that is not providing service to the government?

  34. Hi Jan

    Great article. Very insightful, but I have a question about workkampers. We have sold out house and are now full time rvers. We have been in SC for 8 months and will be spending the last 4 months of this year in NC. How would we file our income taxes? What types of breaks would or could we use sine we live and work out of our travel trailer and use our truck to relocate?

  35. Hi Rik,
    Usually, when you attend a conference or a short business trip, that’s not considered to be working in another state so that’s not taxed to that state. I’m a little confused about the meeting with a government official question though. If you have a job for a private firm, and as a representative of that firm, you’re meeting with a government official–that’s still part of the job. Your company should pay you for that time. (Not the government.) But maybe I’m not understanding the question. Hope that helps.

  36. Hi April,
    Well, I learned something new today, I had never heard of a workkamper before. Since you sold your home, you really are sort of a free spirit as far as where you’re traveling to aren’t you?

    I would file a part year return for SC and another part year return for NC. At least that’s what I would do for 2016. Now it might be that some day you find a place that you want to call home and make that your home base and you return there, but for this year at least I’d say part year NC, part year SC.

    For you you’ll probably have to think it through each year as you wind up working at different sites. This year you had two fairly long term assignments. It’s possible that in the future you could have some much shorter assignments – and then you’d have to try to figure out your “tax home”. Then you’ve make that one state your resident state and the others you’d file non-resident returns. But you’ll figure that out as you move ahead with this career.

    One thing you might want to think about is the possibility of claiming “employee business expenses”. When you’re working at a temporary job assignment that should last for less than one year, you can usually claim a deduction for you meals, lodging, and transportation expenses. I’m not sure if you need extra deductions, but it’s something to think about if you do.

    Thanks for teaching me something new!

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