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I get a lot of questions from people about working in one state and living in another. That’s pretty common here in Saint Louis where we have lots of folks living in Illinois that come over the river to work here and vice versa. Today I’m going to talk about doing your tax return when you have two states to deal with.
First, the technical words you need to know:
The state you live in is called your resident state. There will probably be a check box or something like that in your computer program. If you live in Illinois, then your resident state is Illinois.
The state you work in (but don’t live in) is called the non-resident state. In this example, Missouri is the non-resident state.
Tax liability: This is not your refund or the amount of money that was withheld on your W2. Tax liability is a number computed when you prepare the state tax return. It will say “tax liability” on your state income tax form. This is the dollar amount the state says that you owe them for taxes before they take into account what you’ve already paid through your withholding or estimated payments.
That’s not so hard, right? Next, you need to make sure you do your tax returns in the right order:
Always do the federal return first. Make sure that it’s done and that it’s right before you start your state returns. If you finish, and then go back in to make changes to the federal, you’ll have to go back and double check everything on the state returns and that can be a pain in the back, so finish the federal first.
Next, do the non-resident state—that’s the state you work in. That one’s easiest. You only pay tax in that state for the wages you earn in that state. Usually, when preparing a non-resident state return, there will be a check box that says “non-resident” somewhere in your software. Be sure to check it. You’ll want to make note of your “tax liability” for the non-resident state. You’ll need that number for your resident state return.
After you’ve finished the non-resident state, then you can prepare your resident state return. You resident state is going to tax all of your income (including the wages you earned in the other state.) The resident state will include your wages, interest, dividends, stock trades, retirement income, and basically everything else that’s taxable.
Things to know about the resident state return:
Even though you pay tax on all of the income you earn to your resident state, you will get a credit for taxes paid to another state. For example: using our Illinois/Missouri return again—since you paid income tax to Missouri for the wages you earned while working there, Illinois will give you a credit for those taxes paid so you won’t end up having to pay twice for working in another state.
The form you need to complete will have different names depending on the state, but it will basically be called a Credit for Taxes Paid to Another State. Sometimes it will be listed as an NR Credit. Depending on which software you use, you might have to dig for it. Some software programs are really easy and it will just pop up automatically when it recognizes that you have multiple states.
Remember the tax liability number I told you to remember? Well that’s going to go on your NR Credit form. Some software is really good at automatically plugging it in for you. In some other programs, you’ll have to manually enter it. The important thing is that you know that number needs to be there and that you know to look for it.
I’m getting a really big refund from my resident state, can that be right? Most likely not. When you see an unusually large state refund, it’s always a good idea to take a closer look. Check to make sure that the income numbers match up to the federal return and that the Credit for Taxes paid to another state was computed properly. It’s rare to get a big refund to your resident state unless you’ve had some other income that had withholding. The credit for taxes paid to another state usually will almost never be more than what you would have paid for taxes in your own state.
I’m showing that I owe a whole lot of money to my home state, can that be right? Maybe yes, but maybe no. The first thing you want to check is that you’ve taken your credit for taxes paid to another state. That’s the most common problem when you owe a lot. Other factors could be working in a no-tax state while you’re living in a taxing state. For example, let’s say you live in Louisianna but work across the border in Texas. You won’t pay taxes in Texas so there’ll be no credit for taxes paid there. In a case like that, you’ll definitely owe. Also, you could have a big difference because the states have different tax rates. For example: Missouri’s tax rate used to be twice as much as Illinois. If you lived in Missouri and worked in Illinois (opposite of our example earlier), you’d still owe Missouri about as much again as what you paid Illinois. (Now the rates are much closer, but people who live in Missouri and work in Illinois will still wind up owing extra for their Missouri taxes.)
What if I live in a reciprocal state? Some states have arrangements with their neighboring states to share tax information and tax revenues. In a situation like that, you’ll just pay taxes in your home state. The states will actually sort out who gets how much of your tax money. Usually, it’s simply a matter of checking the “reciprocal state” button in the software.
For most people, if your federal return is fairly simple, preparing two states is not that difficult. Use a good software program, follow these directions, and you should be fine.
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Ok, here it is, and its weird to me! I have worked in Missouri and lived in Oklahoma for twenty plus years. Tyson foods always held out Missouri state tax, and I rarely ever got much of it back, but still had to pay Oklahoma. So recently, jb hunt took over tysons livehaul and I was terminated from tysons, and hired by jb hunt. My job is the same job, in the same location, except, now, my new employer is not doing a withholding for Missouri tax, but is doing a withholding for Oklahoma. So, jb hunt is based in Lowell Arkansas, and as a truck driver, I get in my truck in Missouri, and my work day involves Oklahoma, Arkansas and Missouri.
What is wrong with this picture? As a truck driver, I feel the past years of paying Missouri should never have happened at all
Hi Robin,
It sounds kind of crazy. So lets see–I think you did your return right. Illinois is being funky about it. So the question is, what is Illinois missing to make them act funky about it. And your employer is refusing to help you out. Geez!
It seems to me that you should have a W2 for your husband that has Indiana income and Indiana withholding. You should also have an Indiana non-resident tax return. The combination of those two things should give you the proof you need for Illinois.
If that doesn’t settle them down, call me.
Hi,
We reside in Texas but my husband worked in California and Wisconsin last year.
Some of the people he works with told him they received back the full amount of taxes they paid into other state taxes. These people live in states without state taxes also. Can this be true? For year of 2011 we paid VA, KS and wound up paying CA even more than was withheld.
Thank you
I live and work in Wisconsin for a global company that has offices all over the US. I have worked for this company for 14 years but recently changed roles and my new boss is based out of the Cincinnati OH office. Much to my surprise I got 2 W2’s from my employer this year because they have been deducting OH state taxes and Cincinnati local taxes in addition to my WIsconsin taxes! I contacted HR and they fixed my location in SAP but told me to consult a tax adviser to make sure I am not getting taxed in both locations. Now what do I do?? It seems to me I am paying the price for my employers mistake; how do I ensure I am not paying too much in tax? How do I get Cincinnati local and OH State taxes refunded?
My husband and I are both Illinois residents. I work in Illinois and he works in Indiana. For years, we have claimed all of his wages on IL Schedule CR column B because he has no other income besides that earned from his Indiana employment. In 2011, IL rejected our Schedule CR, saying that we could not use the wages from his Indiana employment because, “You may not include compensation paid in Illinois in Column B of you Schedule CR.” The wages we listed in column B were only his, and they were only from Indiana employment. Illinois Dept. of Revenue has requested a letter from his employer addressing the correct wages and withholding for both Indiana and Illinois, but the employer refuses because they feel there is nothing to correct beyond what is listed on the IN and IL W-s already provided to us. HELP!!! We have no idea what to do now!
Hi John,
You are Illinois residents and Missouri non-residents. Missouri is your vacation home. You won’t need to file in Missouri unless you have earnings there. Your pensions and social security income are attributed to Illinois.
Hi Marty,
Your St Louis tax doesn’t count as a deduction for your Missouri tax return because Missouri doesn’t let you deduct Missouri state (or local) income tax as a deduction. Your Missouri and your St Louis taxes count as taxes paid to another state, that’s why you get to deduct it in Illinois.
Since you worked in St. Louis, even though you don’t live there, you’ll not get a refund. Sorry.
Hi Barbara,
I am currently a resident of Illinois but am in the process of buying a home in Missouri to be near my son and grandchildren. My wife and I plan on keeping both houses and splitting our time between them (25% Missouri and 75% Illinois.) We are both on Social Security and receive pensions from the State of Illinois. (Currently, said pensions are not subject to the Illinois income tax.) We also have some interest income earned from banks and credit unions in Illinois. Will we have to file a Missouri State Income Tax return? Thanks, John
Hi Lee,
Technically you should file an Illinois tax return and pay tax on your Illinois income. Generally, your company should withhold tax for the state that you work in.
Hi Jan,
I live in Illinois with my spouse. He works in Illinois and I work in Missouri. My situation seems different from the others posted as I always owe state taxes to Missouri but we sometimes get a small refund from Illinois.
For instance, this year I owe Missouri $291 but Illinois is refunding us $81. I’m wondering why Illinois allows for the 1% earnings tax to be used when figuring my credit for taxes paid to other states but Missouri does not allow a credit or for it to be figured in with their state income taxes? I’ve paid almost $500 in local income tax this year and if it counted for something surely it would offset the $291 I owe. Is there any way to file a tax return with the city for a possible refund? I’ve visited the city website and it seems they require one to work outside of city for part of the year in order to get a refund. I worked in the city all year but thought they might have a non-resident tax form I could take advantage of.
Thanks for any assistance you can provide.
I work in Illinois and live in Missouri. Do I need to file an Illinois state return if I didn’t pay taxes to Illinois at all? My pay stub only shows it took out federal income, medicare, social security and MO income tax.
Hi Barbara,
File as an Arkansas resident and Okalhoma non-resident for your Oklahoma income. Texas has no state income tax–nothing to do there.
I have a w-2 from tx and i live in ark. Worked in okl. How would i fill. Thanks
Hi Jackie,
The St Louis City tax won’t help you–it helps Illinois residents who work in St. Louis City because it counts as an offset against their Illinois state tax returns. Sorry.
For Missouri you will file the MO 1040 and the CR for taxes paid to another state. You will attach a copy of the Illinois return to MO (efile is easier) along with the copy of the federal.
Dear Jan, I live in Missouri and work in Illinois. From your column, my understanding is I have to file separate returns for my resident state and non-resident state. And, I will probably be owing Missouri because of the tax rates.
Here’s my question: How does living in St. Louis City and paying the additional St. Louis earning tax factor into the equation? Will I get my money back and if so, will it appear on the Missouri state form or what additional forms do I need?
Thanks in advance for your help. I really appreciate your post, and the subsequent discussion is very informative and helpful!
Hey Julia,
Sorry but I have tuition to pay for my daughter in college. I don’t do your taxes in this column. If you want me to crunch numbers please call and make an appointment. Sorry.
Wow thanks for the great info! I had no idea what was going on with these two state taxes. I am also really glad you are still responding to questions here in 2013!
First off, I am wondering what the rates are for IL vs MO for this year?
I also live in IL and work in MO. I’m am single, with no dependents, and this is only my 2nd year filing taxes since I graduated from college and got a “real job.” I’m not even sure if I filed mine right last year.
In 2011, since I had started my job in Sept, I only made about $15K. I ended up owing IL about $700.
In 2012, I made about $57K, and when I tried to do my taxes online with H&R block, it said I owe IL almost $3000! Does this seem right to you?
My federal return was only in the $2600 range so after everything I would still end up owing $400. I’m worried about this.
Hi Nathan,
You will file a part year return for the state of Illinois and on there you will show how much income was earned in Illinois versus what was earned in Tennessee–so you should receive a refund for the extra tax that was withheld.
For part of the year, I tele-commuted as a software consultant working for an Illinois company (in Granite City, IL). In July of 2012, I moved from Memphis, TN (which has no state income tax) to Chicago so that I would be closer to where I worked. However because the company was based in IL, I had State taxes withdrawn for the entire year I was employed. In filling out my IL State taxes, am I suppose to report the total income for the entire year, or just that portion of my income that I earned once I actually moved to Illniois and took up residency. Thank you for your info
Hi Marc,
I had almost the exact same problem (but I didn’t work in Georgia.) You’re absolutely right, file the non-resident Illinois return but really you should show that you didn’t earn the money in Illinois and they should refund it completely. And you should pay Georgia.
If you chose to pay Illinois taxes, I don’t mind. I like Illinois. I live right across the river. But technically, all of the state tax should go to Georgia and not Illinois.
Also, contact your company and have them fix the withholding.
I work for a company whose office is in IL, but I work from my home office in GA. For several years I have only been getting GA taxes withheld. I would file a federal tax return and a GA tax return, and have never had any issues. However, mid year I took another position within the company and in doing so my withholding taxes changed. I am now being withheld IL taxes but no longer GA taxes, but still work from my home office in GA. Based on the previous discussions, will I just file a non-residential IL form and a residential GA form. Since IL is less in taxes I would then pay the difference at the end of the year for GA? Would this flag me for audits?
Thanks,
Marc
Hi Julia,
The easy answer is to call me and have me do your taxes.
But, basically, you will be filing a part year return for Illinois and a non-resident return for Missouri.
We just moved to Illinois from Florida in September. I work in St. Louis. In Florida we didn’t have income tax so this is all new to me! I’ve always done our taxes but am a bit leery to do this this year with the moving expenses, income tax for 3 months and the living in Illinois and working in St. Louis deal. Any advice?
Hi Pat,
You will file as a Minnesota resident and an Illinois non-resident.
Is your work in Illinois temporary? Are you expected to be done with your Illinois job within one year? If yes, then you may deduct your temporary living arrangement expenses which would include:
rent, utilities, travel, and meals whild traveling in Illinois. You may not deduct any living expenses for Minnesota.
You’ll do this on form 2106 and it gets reported on your Schedule A. Your expenses need to be more than 2% of your income to be counted, but it sounds to me like you’ll easily hit that mark–unless your employer reimburses you for your living expenses–then you can’t claim them.
Your information here is very helpful! I have a question on two sets of living expenses for two states at the same time.
I have living expenses in MN and IL.
I am a resident of MN.
Jan – Sep: I worked as a W2 employee in MN
Jul – Dec: I am working as a W2 employee in IL
(Jul-Sep, overlap – I worked 40 hours/week in IL AND worked 40 hours/week remotely for the MN job)
(Oct – Dec: I work solely at the IL job, but am still a resident of MN.)
I drive back to MN approximately every three weeks (in MN for 2-3 days).
I pay rent on my townhome in MN, and pay hotel lodging (and food, etc.) in IL.
What kind of deductions can I take for having living expenses in two states?
Thanks!
Pat
Hi Michelle,
You live in North Carolina and work in Illinois, right? And you have had no state taxes withheld but you are paying esitmated taxes, right?
You will still have to file tax returns for both Illinois and North Carolina, because you live in one state and work in another.
Now, it’s not unheard of to live that far away from your job. (I have a friend who lived in New Mexico and worked in Vermont–what a commute!) But, it is a little unusual, so I’m going to ask you some questions, okay?
First–are you physically working in Illinois? Or are you living in NC and getting paid by an Illinois company? If you are not setting foot in Illinois, then no Illinois taxes.
But let’s say you travel to Illinois to work, and go home occasionally because you really do work in Illinois and live in North Carolina–is this a temporary situation? Or is it long term? I ask because you may qualify for some deductions if this is temporary.
Why isn’t your company withholding state taxes? Are they withholding federal? That doesn’t make sense.It happens, just thought I’d ask. They’re things that make me go “Hmmmm—I wonder if there’s something there to reduce her taxes.” (I know, you were just thinking I’m nosey–I’m that too, but really it’s all about reducing your taxes.)
But bottom line–if you live in one state and work in another, you will file tax returns for both states. Because you live in North Carolina and work In Illinois, you will get a credit on you NC taxes for the taxes that you paid to Illinois.
I live in NC but work in IL. I have been making estimated payments to IL and have have no states taxes withheld. Will I have to file a state return for NC since I’m already paying my home state estimated payments?
Hi Brenda,
I don’t think you’ll be in trouble. What will have to do is that you will file as an Indiana resident and an Illinois non-resident. There is no reciprocity between those two states so you will claim a credit in Indiana for taxes that you paid to Illinois.
I hope they withheld Illinois taxes. If they didn’t withhold anything, you’ll wind up having to pay.
The only law that changed is that Illinois taxes are now higher. It might be that the higher taxes will cover all of your Indiana tax. I really can’t tell without looking at it, that’s just a guess.
I live in Indiana with my employer in Illinois. Up until January 15th, 2012, they withheld both Illinois and Indiana state tax. This year they stopped. Did a law change or am I going to be in big trouble this year?
Hi Kevin,
It’s actually even easier than that. You will file a Minnesota tax return as a resident. You will also file an Illinois tax return as a non resident. Your employer will apportion your income if there is any apportionment that needs to be done.
You will pay the Illinois tax on the income you earn in Illinois and take a credit for it against your Minnesota state income tax. Minnesota gets to tax your income no matter where you earn it because that’s where you live.
Any income you earn from dividends, or interest will be Minnesota income.
I hope that helps.
Hi,
Thanks for you information on this subject. I live in MN and work 4 days a week typically in IL. I am a W2 employee.
Let’s assume for simplicity that a work 4 days a week each and every week in IL for 52 weeks of the year.
Should my apportionment factor for IL be 4/5ths of my income or 4/7ths? Is there flexibility to choose? If MN ha a lower rate then I’d want to apportion more income to MN for example.
Many thanks
Kevin
Hi Kevin,
In your case, I would only file an Indiana tax return. It’s not like you really work in Illinois, you just occassionally take a business trip to Illinois. If everyone who took business trips to other states had to file those state tax returns I’d be pulling my hair out just trying to file my own. (My husband’s been traveling a lot this year.) You’re fine just the way you are.
My company is in Illinois, and I am a salesman with all customers I work with in Indiana. I reside in Indiana, and work from a home office. The only time I would be in IL is for company training meetings a few times per year, and I perform no other job functions in Illinois. My employer has an Indiana State ID and currently that is the only state that taxes are being withheld from. Would I need to also file a return with Illinois as well in this case?
Howdy Roscoe,
You know, that’s a really good question because if you do it in my tax software you only get the credit for your Missouri taxes. But, if you read the instructions on the Illinois website it says that you can use city taxes as a credit against your Illinois tax. Here’s the link, you’ll want to scroll down to page 4: http://www.revenue.state.il.us/TaxForms/IncmCurrentYear/Individual/Schedule-CR.pdf
So, if you’re doing it on your own–you might have to manually input the city tax to get the credit. I’d complete a St Louis city tax return (even though you’re not required to file if you’ve paid your 1%) because you’re going to want to attach it to your Illinois return to prove you paid the city tax. (Or at least have a copy handy if you efile so you can mail it if they ask for it.)
Thanks. That was a really good question and I learned something. Now I’ve got to go back and look at some returns to see if I can get some folks some money back!
Howdy. I live in IL and work in MO as well. Appears I owe due to the recent tax hike in IL unfortunately. Let me ask this. The city of St Louis, MO also levies a 1% earning tax against my income. Comes right out of my check. Can this be used as a credit against my IL tax burden? Thx.
Hey Rebecca,
You will file a Kansas non-resident return and a Missouri resident return. After you prepare the Kansas tax return, you will use the tax liability to Kansas as the number you put on the Missouri credit for taxes paid to another state. You’ll owe much less to Missouri if you take the credit and YES! you should.
My husband and I live in Missouri and he works in KS. There were no taxes to Missouri taken out of his check. Im not sure if we qualify for the credit for taxes paid to another state. My gut tells me no, but it makes a huge difference between owing or not in MO.
Hi Karthik,
No but you can take credit for it on the schedule A of your federal return.
hello
I live in Illinois and work in the St.Louis City. I pay 1% St.Louis city TAX. is it possible to take credit for the City tax i pay in my Illinois return.
@ Jacquelyn,
My gut reaction is no! Don’t do that. But just to be safe–just try running the numbers both ways and see which works better. If you’re doing your taxes yourself–usually there’s a button you can switch to split your returns and see what happens. Usually, Married filing jointly is better than Married filing separately for tax purpsoes–but sometimes the difference isn’t much on the federal but it can be a big difference in the states. Try it and see.
First, thanks for all of the useful info! 🙂
I have been working on my tax return and had a lot of consulting work through the past year. With my income and my husbands, we are $4000 over the 139,500 limit, which throws us into a much higher tax bracket. In your opinion, would it be worth it to go through and try to file married filing separately so that we are each in a lower bracket? Thanks for any advice/info you can provide.
JC
Hey Karen,
You and a whole bunch of other people wound up owing this year. First, it won’t do you any good to withhold more in Missouri–you’ll just get a refund of the overpayment and still have to pay Illinois.
If your employer will withhold for Illinois, that would be great–but many employer’s won’t.
Most likely, you’ll need to make estimated tax payments to Illinois every quarter. I’d guess $200. You can probably get preprinted payment coupons out of your computer software. If not, they have them here: http://www.revenue.state.il.us/taxforms/incmcurrentyear/individual/il-1040-es.pdf
I have lived in Illinois and worked in Missouri my whole life. This is the first year that I will have to pay Illinois $780. I am assuming from the tax increase last year. How can I avoid this happening next year. Should I have more MO taxes taken out or do IL-W-4 for Illinois and if so how much?
Hey Jonathan,
So you live and work in Rhode Island. You made $46,000 between teaching and outreach. But on your Rhode Island tax return it says you made $70,000? Am I understanding your question? Is there another state or more income involved elsewhere? Sorry, I need some more information.
Hey there,
My name is Jon, and I live in RI. Last year I made about $40,000 as a teacher last year, and $6,000 through an outreach program in RI. I used the H&R Block computer program and it says I am being taxed on almost $24,000 more than what I made in RI. Now it says I owe RI almost $900 dollars. Do you think I may have done something wrong? Your time and help are greatly appreciated. Thank you so much.
– Jon
PS to Kim:
Did you have to say Turbo Tax?
Hey Kim,
Your type of return is one of the worst kind. You might need some professional help, but let me give you the easy fixes first.
In a perfect situation–you would have 2 part year returns and your Indiana would be a part year return with a credit for taxes paid to another state. But it won’t work. There’s too many issues there for the software to handle.
So–option one: file an Indiana resident tax return showing a credit for taxes paid to Illinois. And an Illinois non-resident tax return. This isn’t cheating, everybody is getting their fair share of the money.
Option two: file a part year Indiana return for the 1.5 months you lived there, and a part year Illinois return for the 10.5 months you lived there. You’ll apportion your income and pay tax to Indiana but you should get a refund from Illinois if you’ve been withholding properly. Once again, it’s not cheating, everybody will get their fair share of tax money.
If you get much of a difference in the numbers, I’d go with whichever gives you the most money back (or pays in the least amount.) I’m guessing the answers should be fairly close but it’s not always that way.
Basically, because both Indiana and Illinois have income tax–either option should turn out fine. If you had been in a non-tax state–then there would be a different issue and you’d have a problem, but I think you can handle this okay by yourself. Good luck.
I am getting ready to file my taxes for the first time after moving to a new state, but remaining at my job in my previous state. I now live in Indiana, but work in Illinois where I just moved from. I lived at my home in Illinois (which I still own) for 10.5 months last year. I moved to Indiana (where I bought my current home) and lived here for 1.5 months last year. Trying to figure out how this will work to file my taxes for 2011.
I also work from home, still doing my job from Illinois, from my Indiana house. This is very confusing to me. Is there an easy way to figure this for filing my taxes on my own on Turbo tax? Any assistance would be greatly appreciated.
Ah Seth,
Gee thanks. You’re making me blush. Okay, back to business.
Here’s one possible problem: Illinois changed it’s tax rates–so before, when your Missouri taxes easily covered Illinois tax, it’s not as easy anymore. Instead of being 6% in Missouri to 3% in Illinois, now it’s 5% in Illinois. Illinois doesn’t get all of the same deductions that Missouri does so that could be where the problem is.
Another area that could be causing the 500 difference is capital gains or investment income. If you received money from a 401(k) or sold some stock–those things are all taxable to Illinois, but there’s usually no state withholding. So that would be another thing to look at.
If neither of those issues are solving the problem, I’d try the free Turbo Tax hotline. Those people really are trained and usually good at what they do. If that doesn’t help, I can look at your return (but I charge a fee.) I always like to go for the free options first.
Good luck and thanks for the positive feedback.
Hi ive just read the page about two state tax returns and I fully understand it however i am having a problem with my return. i am doing the basic form on TurboTax and although i live in Illinois, I work in missouri. I realize Misouri has slightly higher state taxes however i owe illinois $500 for some reason. i cant figure out the problem. im pretty sure TurboTax applied the credit for taxes from Missouri and illinois still said that I owed 500. this doesnt make sense to me because last year i made about 15,000 less (about the only difference) but didnt owe a dime to Illinois?! I did my taxes in the federal, nonresident, resident order so i dont think that is my problem. Could this be right or should i start over? Something may be wrong but I cant figure out what. Maybe i should contact TurboTax via web or phone? your help would be greatly appreciated, even if you could just point me in the right direction. This has been the most easily understood and thorough page i have come across for my issue. Thanks, Seth US