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. My wife lived and worked in NJ for the whole year 2011. I moved from NJ to CA for a new job in late Oct. As my wife’s income is much lower than mine, we want to file jointly for Fed as we usually do for the past years. Looks like we need to file jointly for NJ return. I couldn’t figure out what our file status is for NJ return. Is it whole year resident or part year resident part year nonresident?

    If it is whole year resident should I report my CA income to NJ? I already paid my CA income to CA as a CA resident. If it is part year resident, then I don’t need to report my CA income to NJ. But when I fill in the date I moved out of NJ on the return, it looks like my wife and I moved together and her income from late Oct to the end of 2011 becomes non-resident income which doesn’t sound right. I am really confused.

    Thanks!

  2. Hi Rani,
    It’s perfectly normal for a person to move and for their employer to send a W2 to a new address–the address on your W2 is not really a problem for you. It’s the withholding that determines what states have to be filed. The withholding, and the state that you live in.
    It sounds to me like you are a permanet resident of Florida, and a non-resident of Georgia (because you’re just going to school there.) So you would file a non-resident return for Georgia–for your Georgia income. Use your permanent Florida residence address on your tax return. It should all work out.

  3. Hey Logan,
    I’m kind of lazy so I would defer to your W2. I’m guessing that your W2 has Missouri withholding and that your current address is in Missouri. If that’s the case, file as a Missouri resident all the way.

    You may be thinking–but what about Kansas getting their fair share? Kansas will be fine without you–you’d only mess up their system filing there with no address or withholding.

  4. Hi Milind,
    you can’t claim your Ohio city tax on your Illinois return, but you can claim it on the Schedule A of your federal return.

  5. Hi Ana,
    You will file part year resident returns for both California and Illinois. You will attribute the income you earned in California to the California return — and the income you earned in Illinois to the Illinois return. It should work something like this: Total federal income: $10,000
    California income: $5,000 Illinois income: $,5000 that’s a workable situation.

    If it looks more like total federal income: $10,000
    California income $10,000 and Illinois income $5,000–that’s a tougher fix. I’d try filing as a California resident with a credit for taxes paid to Illinois as a non-resident. That might still be a perfect wash for you (not sure.) If it’s really bad, you might want to see if you can get you employer to reallocate your California income on your W2. The withholding would be the same, but the wages earned in California would be reduced. Good luck.

  7. I am a student living in Georgia where I do earn income from the school.

    Over the summer, for 3 months, I moved to and worked in Florida where they have no state income taxes so nothing was withheld. I had registered my local (Florida) address with my employer to gain the benefits of living in Florida. However, the W-2 states my GA address though. Do I owe taxes to the state of GA since I lived in Florida during my employment? Should I contact my employer about the address as all my paychecks had the FL address on them.

  10. I worked in Missouri all of 2011. The last week of February I moved from Missouri to Kansas. I lived in kansas until the middle of November and then moved back to Missouri. how will i file this?

    Thanks!

  11. Hi! I live in Illinois and work in Ohio. I paid Ohio income tax as well as city tax in Ohio (highland Heights) where I work. I paid tax in Ill as I am resident of Ill. Can I get reimbursment for city tax I paid while filing Ill tax return?

    Thank you in advance for your time.

    Regards,

    Milind Patel

  12. Hi,
    I moved to IL from CA in August of 2010 and have been living and working in IL ever since; however, I just realized that the company never updated my home address, so I’ve been paying CA income taxes for all of 2011. I now have 2 W2s, one for IL and one for CA. It seems like I’ve paid state income tax in both states … what should I do?

  13. I am US permanent resident, but have lived in Dublin, Ireland during the past year and a half. My husband and I used to file taxes in N.Y. before our move to Europe & we continued to file our tax returns in N.Y. (using my in-laws address) as our positions here were meant for a short time only. But after returning to the U.S. last April, my husband moved to Maryland for work. I was wondering if we should file tax returns for NY at all? Neither of us had any income in NY during the last year.

  14. Hi

    My wife is a full time non resident of CA and resident of IL. Her company gave her two W2s, one for CA and one for IL. Her IL W2 has her full wages for the year where as CA W2 only shows CA part. When I tried to submit IL taxes online, it gave an error of 0615 saying that sum of non IL Part + IL Part = total wages but since my IL wages is total, IL wages (total)+CA wages > total wages. What should I do now, should I ask the employer to send updated W2s or should I just do paper filing?

  15. We live in NJ. Spouse works in NJ but I work in MA – since I rent an apt there and spend more than 180 days, I file MA as resident. We used to file NJ married filing separately and I would take credit for MA taxes. But this year, it costs me less to file jointly in NJ and file separately (just for myself) in MA. Is that valid?

  16. Hi Angelo,
    It must be California day on the blog. Your employer is doing the right thing by withholding California taxes. You maintain a California address and your family still lives there. So, yes, you should be paying California taxes.
    Because you work in Illinois and pay taxes there too, you should get a credit from California for the taxes you pay to Illinois.

  17. Hi KC,
    Yes I do tax returns for people in all sorts of places! Here’s your situation–California taxes the income of a California resident’s spouse even if the spouse lives out of state. You’ve got a weird issue–you’re going to be better off filing jointly federal because you have a child–but the California issue might change that for you.
    As much as I want to do your taxes–I’m going to recommend that you do your return in California with a licensed California preparer. I’ve worked on a couple of audits for people with California/other state returns and California always wins. (By the way–I just want to point out that I didn’t prepare the California returns that I lost the audits on–just represented the taxpayer.)
    The thing is–with any other state, they would not count your income (the spouse living out of state) on the state return–but California does. (I did happen to learn a thing or two losing the audit.) So that’s why I recommend using a California preparer–1. California preparers won’t make that mistake, and 2. You’ll be moving to Texas–those preparers don’t do many state returns so state taxes in general won’t be their forte.
    California will allow you to file a joint federal return and file separately for California if you are a California non resident for the entire year, and if you had no California source income. I wouldn’t count you spending the night at your house when you’re visiting as living in California–but you’re technically not moving until mid-year. (Here in Missouri–there’s a tax situation where if you slept in the house for even one night you’d lose the deduction–but I think California would allow some overnight stays.)
    But that’s why you’d want a California preparer–it’s those dumb rules like that (that not sleeping in the house for even one night saved one of my clients $600!)
    Good luck, have a safe move and hopefully the time you spend apart will not be too long.

  18. I was transferred to Chicago from Los Angeles in 2006 and all my income is derived in Illinois. Recently, my employer started withholding Calfornia taxes. They say its because company records show I have a California address and they withhold for both states. I have an apartment where I live in Chicago. I have an Illinois driver’s license and I vote in Illinois. I didn’t change my California address because my wife and children live there and dont want to change their health insurance carrier. My employer suggested I change my address to Chicago but I would rather not. So my question is, is my employer correct in withholding California taxes, though none of my income is derived in Illinois? Thanks in advance for your attention.

  19. Hi,

    First off thank you so much for this great information. I live (now) in California and will be taking a job in Texas (permanately). At least initially my husband and daughter will remain in California and I will rent an apartment in Texas. I will return to California occasionally and they will visit me in Texas. Of course this will all start mid-year. I will reregister my car in Texas. Will we be looking at married filing seperately (I will have no partial year income in California) or will I have to file my Texas income on California income taxes? Can we file joint federal and MFS for state? I will be making roughly a third of what my husband makes. Oh we own our home in California and it will be where I sleep when visiting. Do you do taxes for people not in your state because I think we will need help?

  20. Hi Sandeep,
    We talked on the phone and yes, the amount you owe to Illinois sounds right. Make sure you use that amount as a credit for taxes paid to other states when you file your California return.

  21. I am a Non Resident Alien for tax purposes for Federal Tax Returns, I worked in two states CA for about 9 months and IL for 2 months.

    What is my tax residency status for both these states. Do I have to file just the tax returns for Non Residents for both states? and Do I have to file the Credit for Taxes paid to to other states for any one state ?

    I earned $3728 in IL, I read that there is no need to file taxes if the total income is less than $3700. But there is a huge tax (190$ for my income just above 3700$). This is due to a large amount of income I earned in CA, my exemption allowance is very low for IL state, so I have to pay a tax of about $190. The amount of tax payable to IL state is depending on my CA earnings. If my CA earnings were very low, then the exemption would be high (close to 2000$) with which I will have to pay very less tax. Is this correct? or do I need to file the Credit for taxes paid in other states as well? This is a little bit confusing to me.

  23. Technically, you should file as a North Carolina resident and a New York non-resident. So depending upon the credit for taxes paid to another state–you may owe North Carolina taxes, but I doubt it.

  24. I have a question about state taxes. I lived in Minnesota and was transfered for my job to Massachusetts. I moved to Rhode Island because I had a place to live with friends. I do a commute to my job in Massachusetts. For my moving expenses which state do I deduct the moving expenses from? Would it be Massachusetts since its the state my job is or the state I actually moved to Rhode Island.

    Thanks,
    Brenda

  25. I am currently a grad student in North Carolina and full time resident (have been for years). I worked in NYC this summer and made all of my money in New York, but only lived their 10 weeks. Do I need to claim that income as New York or North Carolina? Will I owe anything to North Carolina? Thanks for your help.

  26. Hi Michelle,
    That could be right, the way the taxes work. But here’s what I’d do–your student lived in North Carolina for over half of the year. He only made $47 in Illinois so he wouldn’t even have to file an Illinois return. I’d file the North Carolina return as a resident, using his North Carolina address. His Illinois income would be non-resident income to North Carolina, but he wouldn’t need an Illinois return. That’s probably the easiest solution.

  27. Hi Leo,
    That’s a good question. Personally, I would allocate the 50% of the time to Missouri and 50% to Illinois. But you would be perfectly allowed to allocate the entire 1099 income to Missouri if it worked in your favor.

  28. So my student who is an Illinois resident earned $47 bucks in IL. While at school in North Carolina he earned $6900. Even after taking the credit for the taxes he has paid to North Carolina – he has to pay IL an additional $110. Can this be right – I keep going over and over the IL1040 and Schedule CR and there isn’t a place to “deduct” his NC income from his IL base pay – am I missing something? Just seems so unfair that both states get to collect . . .

  29. Hi there. Both my wife and I are Illinois resident. My wife is self employed. Last year (2011) she sometimes had to travel to Missouri to work on site for a client. Other times she just worked from our home in Illinois for the same client (about 50% worked from home at IL, 50% travelled and worked in MO). We understand we have to file Missouri state tax as nonresident. However, we are not sure how to allocate her non-employee compensation stated in her 1099 MISC form sent by her MO client. Do we have to allocate 100% compensation from her MO client in Illinois Scheduled CR Business Income as Non-Illinois Portion? Or should we divide her income from MO to 50% IL, and 50% MO because she was physically in MO 50% of the time? Thanks in advance.

  30. Hi Tracy,
    You’ve go so much going on here I’m not sure where to start. I take that back–I know where to start–but then it gets tricky.

    First–your home state is Missouri so you file a Missouri resident return. (Easy part out of the way.)

    Second, you will file a non-resident return for Illinois–because you have to–no way around it. The employer is withholding for Illinois.

    Now–about Tennesee, Indiana, and Kentucky–is the employer withholding for them? Or does he just travel there for business trips? (For example–different job long ago, I used to live in Massachusetts, but I flew to Texas and Okalahoma quite often for business. Even though I worked in Texas and Oklahoma, my paycheck always withheld Massachusetts taxes. I never had to do an Oklahoma return. (Texas doesn’t have state income tax, not really a good example.)

    Now if the employer was withholding for those states, then you’d be filing tax returns for those states. So it’s sort of how the employer sees it–unless he’s really setting up residences in those places, I wouldn’t worry about filing returns there.

    But–one thing to look at. Does the employer reimburse him for all of his travel? If not–he should be doing a form 2106 Employee Business Expense form–it might make for a nice deduction for him.

    Bottom line–the employer has determined that your husband works in Illinois, that’s why Illinois tax is being withheld. So you will pay Illinois tax for that income, and then you will receive a credit on your Missouri return for the tax that you paid to Illinois. The tax is what’s on the Illinois tax return–not what was actually withheld.

    Hope that clears things up a little.

  31. both of my husband and I live in MO, I work in MO,my husband has a home office in MO (80% time he works in MO, about 20% he travels to IL, TN, IN KY), his employer is located in IL, so, on his paycheck he has IL tax withheld. so, could you please advise does he need to pay tax to IL? can we get all tax withheld from IL returned? please keep in mind, his most work place is MO. thanks in advance.

  33. Hey Bethany,
    I think you’ll be fine if you file both you and your husband as residents and pay non-resident tax to West Virginia. I probably should have just had you do that from the very beginning.

  34. Thanks for your quick turnarround..

    I’ll for sure need your expertise on my taxes for the 2012.. what is the best way to contact you .. as you are correct, I’m still a chicago resident and I fly back and forth to MO over the weekend.. do you think i can claim both CA and MO business/personal expensees.. considering the fact that i’ve a house in chicago and my family is living there?

    I’ve never ran into complex Tax situation like this before.. I’m keeping all receipts/bills/hotel invoices/etc .. do you think i need to bundle them up or they are worthless?

    send me your business info please.

    Thanks

  35. When I first filled out our taxes I forgot to put that my husband lived somewhere else and I filed how you just told me to and we would get back 227 instead of 6 but my question is will the state come back or after us since he did live there for 6 months? I dont want to have to give money back lol I’m sorry I have a lot of questions I just don’t want to file wrong and it come back on us.

  36. Hi Kathy,
    I would have your husband change his withholding to North Carolina because he will have to pay North Carolina income tax. So depending upon the move, you’ll be a part year resident of both states, your husband will be a resident of North Carolina.
    I would also have your husband keep track of all of his expenses in North Carolina–just in case his company decides to move him back to New York. (There are deductions for temporary work situations. Although it sounds like your move will be permanent–I’d keep track anyway, just to cover your bases.)
    If your husband lives in North Carolina–he won’t be paying New York taxes–just you will. So it should all balance out.

  37. Here’s our situation. My husband took a position in North Carolina for the same company he worked for in New York. he is currently living in our RV at a park (temporary living situation). I am living in New York and have New York income. I will be here until our home sells. we do not plan on buying a home in North Carolina until after the home in New York State sells.

    Should my husband change his address to North Carolina for withholding on his paycheck? 9I believe he has to). What happens when we file our 2012 taxes? If our home hasn’t sold then I will be a full year resident and he will be a part year resident. I don’t want to end up with a big New York State tax bill because his company is only withholding North Carolina taxes from his paycheck and not new York State taxes. Or can his company withhold both and should they?

  38. Hi Bethany,
    Some states allow you to do married filing separately even though you file jointly on the federal. Sometimes, it’s only for special situations (like part year states.)
    Now if it’s only costing you $6 if you file as Virginia residents and WV non-residents, then I’d just do that because it is easier. (But if you’re losing out on a refund–that’s a different story. Tough it out and do the part-year returns.)

  39. Another thing when I filed it threw turbo tax and filed part year for WV it will not let me use married and filing jointly it makes me check married filing separate. How can that be when I’m filing married jointly ?
    I also saw where you could by the turbo software and it would let you file federal jointly and state seperate is that true?

    Thanks for your time

  40. Ok thanks we only get $6 back because of it. I guess I’ll
    Just file both states part year unless your allowed to do WV part year and va full year. I’m so glad we won’t have this mess next year. My husband only lived with his parents in WV do it’s not like he owned property do I wish we could just file nonresidence.

  41. Hey Bethany,
    It’s confusing because you’re not a part year resident–but some states use the phrase “part year” for a couple of things. Besides, even though you were there the whole time, your husband was only part year.
    Go to the part year form and follow the directions. In your case, it will probably be best to get a credit for taxes paid to another state, but you might need to play with the returns a little.
    Most people do better filing their tax returns as married filing jointly. If you don’t have children, filing as married filing separately might not be harmful to your refund–but it would make your states easier. You might want to check out that option just to see if you save money. (Usually you don’t, but sometimes you do.)
    But don’t let the “part year” phrase fool you, it’s okay for your situation.

  42. My husband and I were married in May 2011 but the issue is my husband worked and lived in WV before we got married. I also worked in WV til march 2011 but I lived in va. As of the wedding my husband and I live and work in va. I’m trying to file my taxes online for the first time and I’m confused cuz it keeps saying we have to file part year residence but I’ve lived in va all my life. What can I do ?

  43. Hey AJ,
    You certainly would be allowed to claim full residency status in Massachusetts–but I’m not sure that you’d want to. For one thing–if you claim to be a full year resident of Massachusetts, then all of your Texas income would be taxable in Massachusetts. Also–and since I’m not doing your taxes, I can’t say for sure–but then you’d also have at least 4 months of not paying the Massachusetts health insurance which could end up affecting your tax refund/balance due.
    You’ll want to play with it. In Massachusetts, you can file jointly on the federal and separately for the state. That’s probably what you’ll want to do for the best tax benefit. (Actually, I think you’ll have to file separately if you do the part year and your wife does the full year. (Yes, here’s the link: http://www.mass.gov/dor/individuals/filing-and-payment-information/guide-to-personal-income-tax/filing-status.html#MarriedJoint)
    If you’re using tax software–prepare your federal first as married filing jointly. Save it, and then set up for married filing separately. It will be like filing three separate tax returns. (That’s because it is.) So it depends upon how much money you made in Texas to see if this will be worth your while or not.

  44. My wife spent all of 2011 living and working in Massachusetts. I finished my job in Texas (no state tax) in April 2011 and moved to Massachusetts. Can we file a joint state return for MA and claim full residency statuses for the both of us although I moved to MA in April of 2011? I read something about the 183 day rule. I appreciate your help.

    Thanks!

  45. Hi Maria,
    It sounds to me like you were just using Virginia as an address. I would file a part year return for South Carolina and for Massachusetts. I’d just leave Virginia out of the mix–I agree, you didn’t really live there.
    Now for the South Carolina stipend–did you pay tuition that year? If the stipend was used towards your tuition–then it’s not taxable. In which case you wouldn’t even file a South Carolina return. If you had a full scholarship plus recieved the stipend–then it is taxable. (Goes on line 7, be sure to deduct all of your business exenses from the amount you received–I do a lot of these for medical students here at Wash U–you don’t want to pay more tax than you actually owe.)

  46. Hi Captain Eric,
    (Had to say that, just had to.) Well I actually was listening to Jimmy Buffet on the radio today so I’m totally in the mood to answer your question.
    I say that your home port is in Florida–that’s where you spend the most time when you’re ashore. Although you own property in North Carolina–I’m thinking that’s your vacation home, not your main home. (If that changes, and you start spending more time in North Carolina–you’ll probably have to file a tax return there as well, but until then it looks to me like Florida is your main home.)
    So for now–I’d file as a Florida resident. If in the future that changes–then you’ll file as North Carolina. Also, if you wind up renting out your North Carolina vacation home while your at sea, then you would file a North Carolina non-resident return to report that rental income.
    Hope that settles things a bit for you.

  47. Hi Stacey,
    So understand about allocating things between the states–which is the correct way to allocate your student loan interest. And I agree with you–allocate your IRA deduction to Illinois since you made the payment now.

  48. I was a student in South Carolina, and got a stipend for three months. They did not take any taxes from my stipend. After I graduated, I did not really lived anywhere from April to July but since I was looking for work, my permanent address was in Virginia with my sister though I was traveling the whole time. Never actually stayed in Virginia. I moved to Massachusetts in July, and stayed there till I found a job in September. Any recommendations on how to file my taxes and allocate residency? Thank you! I did not even consider that I might have to think about Virginia since I didn’t live there ever…am I correct? Thank you for any help you can provide!

  49. Ok, here’s a head-scratcher. I am a yacht captain, and although the yacht is registered in the Cayman Islands, the payroll company is based out of FL. We travel to several states and also to other countries. I also have a sailboat that my girlfriend and I stay on when we aren’t working. We used to use the marina in FL where we keep the sailboat as our address, and had to pay no State Income Tax. Last year however, we bought a house in NC, and we will spend probably 4 months a year there. Do we have to pay NC state income tax if we aren’t employed there and spend less than half of our time there?

  50. Thanks for all your helpful information here. I lived in two different states last year (9 months in NJ and then moved back “home” to IL for remaining 3 months). I have prepared part-year resident state returns for both states. Unfortunately, I am an expert at filing multi-state returns. My question, however, is how to allocate the following deductions – student loan interest (do I allocate it according to time in each state?) and IRA deduction (I’m thinking IL since I will write the check now in April). I allocated my moving expenses to IL based on your advice above. Thanks in advance for your advice. Best regards.

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