Multi-State Tax Returns

Posted on: 03/30/11 894 Comments
Preparing multi-state tax returns is tough.

It isn’t always easy preparing your taxes when you’ve worked in more than one state. We can help you get it right!

 

 

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 multi-state tax returns.  If these tips don’t solve your problem, do call us and get some help.  They’re not always easy to handle and we do this for a living.

894 thoughts on “Multi-State Tax Returns”

  1. Hi Gary,
    Your daughter will file as a resident of Massachusetts and a non-resident of New York. She will receive a credit in Massachusetts for the taxes that she pays to New York.

  2. Hi Jan, You are a very nice person to do this for us. I am a resident in TN. I work in NC. NC is with-holding state taxes from my pay check. Should I stop paying NC state taxes because I do not live in NC? Should I file a NC state tax refund to get all the state taxes back? Should I change my W-4 to stop NC from withholding state taxes because I am not a resident of NC?

  3. Hi Katie,
    The systems don’t work when you have a part year and a credit for tax paid to another state. Even I have to do those by hand.

    Try this and see if you get a better answer: do Missouri as your homes state and claim both Kentucky and Kansas for a credit to taxes paid to another state. That should be better.

  4. I was an oregon resident and worked in oregon moved to california in December but made no california wages. Do I still need to file a california return? I own no houses.

  5. Hey.
    I am freaking out right now when my tax guy called me saying i owed almost 2000$ to the state of maryland.
    I am from Florida i worked in florida till july 2012.
    Moved to Maryland in July 2012.
    I took out my 401k from my florida job in order to make ends meet in Maryland seeing as i had to move right away.
    I was taxed on my withdrawl when it was disbursed to me.
    My tax guy calls me today and says i wont be getting any money in reality because i owe maryland money.
    This does not seem correct at all. I am freaking out and extremely depressed.

  6. Hi, I lived the entire year of 2012 in california, but owned a home in wisconsin where my wife and kids stayed. Though we planned to have a place in california for all of us together sooner it didnt work out this year.

    1. What state am i resident of if my wife and kids still lived in our home in wisconsin but i lived and worked the entire year in california?

    2. I paid taxes to the state of california, is this correct?

    3. Can we still file married/jointly?

  8. hello,
    I have been doing our taxes for years, but for some reason i am having a hard time doing ours this year. My husband travels for work, he lives out of our camper while doing so, he has worked in michicagan for 1 month and the rest of the time in illinois, but me and the kids live in our home in wisconsin. How do i claim per diem and do i file as a full time resident of wisconsin since he never changed his drivers license or anything? for the michigan job they were taking out illinois taxes, and now it shows we owe wisconsin ALOT, and we also owe ILL and Ohio..Help if you can? thanks Kathy

  9. Wow, your blog is extremely helpful. Currently my wife and I (and three kids) both live and work in NC. I’m considering taking a job in VA that is too far to commute so if I do, I’ll need to get an apartment in VA and come home on the weekends. How should we file in this situation?

  10. My 22-year-old daughter is a full time student in Utah, where she resided for 50 of the 52 months of 2012 (her college has quarters, so they go to school 12 months a year). She still has a license in Vermont and is registered to vote in Vermont. She has income from selling her art. Should she claim residency in Vermont (listing income from another state) and claim part-time residency in Utah? Would selling art (since it is not from a licensed business in Utah) be considered income from Vermont?

  11. Hi Jan,

    Thanks for the wonderful site, it’s been really helpful. I have a couple of questions and hoping you could shed a light. My husband and I got married in the mid 2012, but we continue living and working in a separate state. I work and live in MN for the entire 2012, while he works and lives in AZ for the entire 2012. I am able to figure out the federal tax refund, trying both filling jointly and separately.

    Now for MN state, it requires to have the same status as federal, so I tried calculating both scenarios too.
    1. Trying to fill jointly, I use the non-resident schedule to figure out the MN income only. Is this correct?
    2. Trying to fill separately, I am thinking only I will need to fill it, because all my income comes from the state. While my husband doesn’t need to fill anything since he never lives and works in MN. Is this also correct?

    For AZ state, I’m really thrown into confusion because AZ is a community property. But I read the rules that you can have a different filling status than your federal.
    1. Trying to fill jointly, I believe we can use the part year resident form, though I haven’t got a chance to try this.
    2. Trying to fill separately, do I also have to fill for AZ? Technically I never receive any income from there. But all the examples out there show that I need to fill for 50% of my husband income, while my husband also fill only for 50% of his income. Is this correct? Or can my husband to fill for 100% of his income and I don’t have to fill anything for AZ?
    3. If I also have to fill even though I don’t work and live there, how do we determine the community wage as well as the community interest? Prorate it into days and calculate for the number of days we are married in 2012?

    Thanks for all the help!

  12. My husband is in the military stationed in VA. His home of record is PA. I am a full time resident of VA with my own W2. We have three kids together. How do we file? I’ve tried filing as married filing jointly and the federal will let me do it but state says we have to do married filing separate. Can we still file our federal as joint and then do state as separate? I’m confused and don’t know how to file. Thanks so much for your help.

  13. Hi Jan,
    I apologize if you’ve already answered this. I lived in MA until April 15th I then moved to VT and stayed within the same company. My payroll office didnt change my address until mid-June so I was taxed in both MA and VT for around 4 pay periods. The payroll office just told me oops, too late for them to remedy it. Do I just guess at what portion was truly MA tax and which was VT? I also have a commission based job so it’s not as easy as counting days! Thanks for the help!
    Shannon

  14. Hi Jan,

    My daughter lives in Massachusetts where she also goes to college 9 months out of the year. During the summer she works for a financial firm in NYC. Then she returns to Massachusetts to go back to school in the Fall.
    Last summer she made a total of $21,000 working for the financial firm in NYC. The financial firm has told her they will give her a W2 for Massachusetts showing $5,000 in income and a small amount in withholding to Massachusetts; plus a 2nd W2 for NY showing the whole $21,000 and the withheld taxes paid to NY. Therefore according to the W2s she will get taxed twice on the $5,000. (The $5,000 was a signing bonus, part of the $21,000). How do I keep her from getting double taxed? Thank you!

  15. Hi Jan, My husband and I moved mid-2012. We spent the first part of the year in KY, then moved to MO. During the time we lived in MO, my husband worked in KS (I did not work while living in MO, so this is only for his income). I believe I have my KY part-year resident and KS non-resident returns correct, but using two different online tax programs, the MO part-year resident return continues to come up with us owing nearly as much to MO as to KS. Am I correct in assuming that we should owe very little, if anything to MO? (Seems the MO tax should only be calculated on the portion of our income that was earned while living in MO, and the tax paid to KS should be credited on the MO return, resulting in no MO tax bill) Am I misunderstanding? Do these online systems have the ability to properly handle a situation like this? Thanks!

  16. Hi Nancy,
    since you live in New Jersey and all of you income is from there, why don’t you just file a full year resident return there? You wouldn’t be reporting any income to Illinois anyway. I’m not sure why you’d be filing an Illinois return?

  17. Dear Never Moving Again,
    Been there, done that, got the T-shirt. Yes, you’re absolutely right. (Never say never–you’ll get stuck moving again. :))

  18. Hi Mickey,
    it sounds like you are a Michigan resident with a temporary non-resident job in Texas. You will file a Michigan return and pay tax on all the money you earned in Texas.
    At least, I believe that Michigan is your home state so that’s how I’d file.

  19. Hi Kara,
    You are married filing jointly. You are a full year resident of Indiana. He is a part year resident of Indiana and a part year resident of Ohio.

  22. Hi Timothy,
    Did you remember to claim your wife’s exemption from tax as a military spouse? And the other thing would be, did you have non-military income? If you had non-military income, that would be taxable to VA.

  23. Hi Gail,
    file as an Illinois resident and then where you allocate the income you put $0 earned in Illinois. That should get you your Illinois withholding back.

  25. Hi Jennifer,
    Don’t worry about prorating your charities, the program will handle the schedule A deductions for you.
    You’ll want to go into the part year or non-resident pages of the tax return and manually allocate the income. That should solve your problem.

  26. Hi, I have a somewhat complicated situation and would like advice on whether I should file as a part-year resident in NJ and in IL. I was attending grad school full time in NC for the first 5 months in 2012 and then moved to NJ for work for the reminder of the year. However, for the 2011 tax return I filed as an Illinois resident since I never acquired NC residence status while I was in school (from Jul ’10 – May -12). Prior to school I was a resident of IL for many years. Now that I live in NJ and all of my wages came from NJ in 2012, I’ve filed a part-year resident NJ tax return. Should I file an IL part-year resident tax return as well? Or NC?

    Thanks for your help.

  27. Hi Jan,

    I stumbled onto your page while investigating my tax situation and it has been extremely helpful. I have a unique situation. I lived and worked in California through February. In February I left California for Illinois and maintained my relationship with my employer. I worked for an employer in Illinois and held the California job remotely from IL. In June I left Illinois for Massachusetts. In Massachusetts I only worked for one employer, but technically I received a vacation payout from my California employer during my residency period (do I need to account for this)

    My guess is the following:
    California Part Year Resident with Credit for taxes paid while in Illinois.
    Illinois Part Year Resident reflecting income from CA W2 for the time spent in IL and IL W2
    Massachusetts Part Year Resident for MA job (and perhaps CA payout?)

    Am I on the right track?

  28. I’m a student in Michigan but I lived in Texas over the summer and made the majority of this year’s income while I worked and lived there. I also kept working for one of the companies when I came back up to Michigan over the holidays. Do I file a part-year resident return for Michigan? And do I even need to do one for Texas (since they don’t have a state tax)? Does it matter what date I “moved” back from Michigan? (I’m using TurboTax)

  29. My husband and I got married June 1, 2012. We lived separately until we got married; I in Indiana and he in Ohio. We both worked in our respective states. He quit working in Ohio when we got married and got a job in Indiana. He also took out his 401K and payed off any debts he had to make sure we had very few debts going into our marriage. My question is how do we file our taxes? I have 2 children from a previous marriage which I claim.

  30. My wife worked in MD (July 2011 to October 2012).
    MD employers (One withheld CA State Tax the other MD State Taxes)
    Employer now out of business and did not reimburse her $5000 travel expenses.
    I stayed in CA because her contract was for one year and were not sure if it would be extended, as it turned out it was not. We have a home in CA and I worked in CA.
    Can we write off the unreimbursed expenses?
    How do we file the State?

    Thank you so much for your help.

  31. Hi Jan:

    I’m doing my state taxes, and am utterly confused. I hold a Pennsylvania drivers license, but only visit PA for short periods — vacation and holidays. I live, work, and attend college in Massachusetts. Do I need to file both MA and PA returns, claiming the MA withholding taxes as a credit in PA? Or can I just forget about the PA return, and file in MA only.

    Any guidance you can provide would be great!

    Thanks

    Cait

  32. Jan,

    I’m in an interesting situation. I am a military member stationed in VA with a NY residence. My wife is a Japanese national whom works in VA. When I do my taxes I prepare Federal, NY, and VA. NY is always zero… But with the VA taxes it figueres our combined income in determaining the rate and I’m always paying… Am I doing this correctly or am I missing something?

    TJ

  33. Jan, I ‘m a resident of Florida and worked for a company based in IL. I received a W-2 from them reporting IL income and IL withholding. I never worked in IL during the year as the work was done in Florida. Is there a place on the IL return where I can reflect this and get my IL withholding back? Thanks!

  34. I’m helping my 20 year old niece with her taxes. In 2012 she didn’t live in IL but for a couple weeks here and there when she was at her IL “home.” For the first 6 months, she lived all over while working for the AmeriCorps. Her wages are CO source with CO withholding. After briefly vactioning back in IL (during the summer) at her mother’s house (which she had been kicked out of in 2011-long story), she went back to CO to start college and lives on campus. She did keep some personal belongings in IL at her grandma’s house and used her IL address to recieve some mail. I’m under the impression that usually students’ permanent homes are with their parents and if they have wages when working out of state while at college they would file a N/R return. So in this case my niece would file a N/R CO return. However, in reality she was pretty transient and didn’t spend much time in IL at all. And she’s trying to build a CO residency case for in state tuition. What would you advise she files?

  35. Hey Jan,

    Thanks for your help! I was a college student in SC, graduated in May 2012, and then moved to GA for full-time employment. While at school in SC, I received a significant amount of scholarships and have reported the scholarships earned minus educational expenses as earned income. While this appears to show correctly on my federal return using TurboTax, it keeps getting applied to my GA state return instead of SC return. I know that the taxes should be paid to SC b/c I was a resident of SC while at school but cannot seem to figure out how to move the “scholarship income” from GA to SC. Any ideas?

    Also, for the federal return, the deductions, like charity donations, are easily applied. When filing for each state, however, do i have to prorate the deductions or does turbo tax automatically apply the deductions for me for each state return? I guess I am just confused as to whether or not I have to “manually” enter deductions into the addition/subtraction adjustments tab in TurboTax for each state return.

    Thank you again for all of your help! This is the first time I have ever had to file taxes as a “real” adult so I am sooooooo confused. AHHHH!!!!

  36. Katie,
    Thank you for your service to our country. Trust me, as a spouse your service is just as important as your husband!
    Generally you file a return, but you claim the income isn’t taxable because of the MSRRA. The returns will all be a little different but that’s basically the way it works. Many bases will provide free tax help to walk you through it.

  39. Hi Adam,
    Texas or Florida, it doesn’t matter, neither state has an income tax. Technically your W2 should say Florida, but it won’t make a difference for you.

  40. Jan,
    Thank you in advance for your response! My husband is in the military and is stationed in Georgia. We both have a residence in Ohio. I lived with him in Georgia from Oct. 2011 till Aug 2012 in Georgia where I worked and moved back to Ohio for the remainder of 2012 and also worked. My question is whether I need to file for Georgia taxes or not given the MSRRA. Everything just talks about my state of residency and the relief act for spouses, but nothing seems to answer my questions about if I need to “file” Georgia taxes or not. I guess I just don’t understand the lingo.

  41. Hi Charles,
    While you allocate your income between your different states, your deductions are not allocated. Just input the numbers into your federal return and they will carry to the right place.

  42. i am a resident of CA, but i work in VA…

    we own a home and my family is living in CA. my wife is not working, she has no income.

    my work start taking a VA tax from my paycheck…

    i use turbo tax to do my taxes… and this is what i came up with… pls tell me if this is correct… I have to pay CA $3.808.00. and i have a refund from VA $5,465.00 (tax withheld was $6,890.00)… how come im not getting all of the money that i paid VA?

  43. Hi. Thank you for taking the time to answer all these questions! I recently moved from PA to CO. I paid estimated taxes in PA and should get a refund of about $2. I have already filed my federal taxes. How should I go about filing the two state taxes? Both as part year residence? PA then CO? I don’t fully understand the state credit issue. Thank you in advance!!!!

  45. Hi Tony,
    Your Washington income gets reported on your federal tax return. Just because Washington doesn’t have an income tax doesn’t mean that the federal government won’t tax the income.

    Also, you should claim that you are a part-year resident of NC. If your claim that you are a full year resident of NC then NC will tax all of your Washington state income as well.

    You don’t have to “renounce” your NC residency. You’re just claiming that you were a part year resident. You’ll become a tax year resident again when you move back.

  46. Hi Charolette,
    The truck driver lives and essentially works in Texas even though he’s driving all over the country. Since there is no Texas state income tax, he only files a federal return.

  50. Hi Jan,

    I hope my question is fairly easy. It may have been already answered but there are quite a few comments on this board.

    In April 2012 I moved from Michigan to Illinois for my job (transfer within the same company). From Jan-April, Michigan income tax was taken out of my check. From April-December, Illinois income tax was taken out of my check. I currently live in Chicago and reside here full time. The only thing is that I kept my driver’s license as a Michigan license as I wasn’t sure how long I would actually live in Illinois (but have switched over almost everything else: bills, loans, bank info, etc).

    From the research I’ve done, it seems that the states take more into account for residency than just your license. So would I just do a “part-time residence” filing for both Michigan and Illinois?

    Any help would be greatly appreciated, as I have always done my taxes the old-fashioned way, by hand.

    Thank you,
    Kevin

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