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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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Hi Jackie,
Both Illinois and Arkansas will allow you to file as Married filing separately even if you file a joint federal return–so go ahead. It probably makes the most sense to do it that way. I don’t think it really raises that much of a red flag, you two are living in different states so it makes sense to file separately.
Hi Kelly,
you shouldn’t be paying Missouri for your husband’s income. Now on the tax return, they will show his income, but then it should be zeroed out as he doesn’t work here. If you look at the second page of the return, on line 27 it has the Missouri income percentage. For your husband, that should say 0%. If it doesn’t, then there’s a mistake on the return and you are paying too much in tax.
Hi Mike,
I’m assuming that your permanent residence is PA and you work in DC, but your temporary address is VA right? If you only spent one week working in DC, I wouldn’t even bother, that’s just a business trip. But if you routinely work in DC, then you would file a DC non-resident return and a PA resident return. Technically, you do not live or work in VA, even though you stay in VA while working in DC.
Hi Whitney,
You’ve got that figured right. But you can avoid the Maryland penalty by making estimated state tax payments to Maryland.
I live in Illinois my husband lives in Arkansas- Can we file jointly on federal and file separately on state – would this be the best bet will it cost a fortune to do this and will red flags be issued. Dont want to pay large amount of taxes. I am only working part time in Illinois is it worth the hassle to work or not. I didnt work before so we filed jointly on both. Need advice plz
Hello Jan, I live in Kansas but work in Missouri, at tax time it seems like MO is taxing me on both mine and my husbands income even though his income is earned in Kansas. Why do I have to pay MO tax on his KS earnings? I thought I only had to pay tax to MO on the money that was earned there? Thank you in advance 🙂
Hey Jan, which state would I have to pay the taxes in if I work in DC. Live in VA for the week. However, permanent residence adress is in PA?
I have a question. I live in MD but my husband just got a consulting job with a company in TN. Maryland has income tax but TN doesn’t. I assume we will have to pay MD tax on the money but no MD tax will be withheld because it is a TN group. So will this cause us to have a penalty, because we have not paid in as we went. How does that work?
Hi Cliff,
I’m guessing that you used to work in Utah and moved to Arkansas? Is this s W2 for 2014? That’s what I’m thinking.
Anyway, since you were paid your severance while living in Arkansas, that’s why the company withheld Arkansas income tax. Personally, if I were withholding Arkansas tax, I wouldn’t withhold the Utah tax, but I can see that going either way.
I would probably prepare your returns as part year Utah and part year Arkansas. I’d attribute $45K to Arkansas and $62K to Utah.
Now if that’s just not working, I’d file as a Utah resident and take a credit for the taxes that were paid to Arkansas. (That’s not my preferred way to file, but if you’re having trouble with the software, that should fix the problem.) The taxes should work out to be about the same either way.
I recently retired (Oct 1,2014) and moved to another state. After the initial retire/move date, I received severance and profit sharing monies. On my W-2 there is 45000 Showing for Arkansas and 107000 showing for Utah (Box 15), the 107000 being my total Federal wages.(Line 1) The Company says this is correct,
Citing monies earned. How can two states claim the same monies?
Hi Sandy,
Your employee lives and works in Texas, therefore you will not be withholding Missouri tax because you only withhold tax for the state your employee works in. (No Texas withholding.)
Also, your employee will not be filing a Missouri return–no Missouri income, no Missouri withholding.
But, you should check with the Texas department of revenue to see if you need to be filing Texas unemployment taxes. (Or any other Texas paperwork that might be out there.)
We are a MO based company. We recently hired an employee that resides in Texas. He will be living/working only in Texas (there is no physical office location there)
Is the employer required to withhold MO income tax? The employee would submit a Mo non-resident return, correct?
Hi George,
Since you work in Bowling Green Ohio, you still pay the Bowling Green taxes, even though you don’t live there.
Hi Justin,
You will file your tax return using your parent’s address in Texas and maintaining your Texas residency. You will still pay tax to Massachusetts on your MA income as a non-resident. That’s all.
Hi Nita,
Since your son is working in Kansas, they should be withholding Kansas state taxes while he’s working there. I didn’t know there was any Texas withholding. That’s completely new to me.
Hi, I live in Miami Fl, and work in Bowling Green Oh, I’m paying Ohio state taxes, which I understand why, but I’m also paying Bowling Green taxes, Am I suppose to pay Bowling Green taxes even if I don’t live there?
Thanks for your help
I am a grad student in Massachusetts and get a taxable research stipend from my university. I am going to Texas for the summer to do an internship and I’m wondering if I will owe state taxes to Mass. I am from Texas so my drivers license and car are registered in Texas. I am registered to vote in Texas and have a permanent address in Texas (with my family) but will be renting an apartment in Mass for 9 months this year (and getting a stipend for those 9 months, which will be reported). Is there anything I can do now to protect my internship income from Massachusetts? The state tax here is high and I’m just a poor grad student : (
Thanks!
Justin
My son works for a Safety Company in Texas he is doing what they call aShut Down in Kansas at a Refinery they are holding Texas Taxes and Kansas Tax also is this supposed to be done he has been in Kansas for approx. 2 months.
Hi Ram,
for three states, I’m not a fan of Turbo Tax. But, one of those states is Florida so there is no state tax. Give it a try, if the numbers look wacky, then call their hotline and have them help you.
Hi Hector,
If there is New Mexico withholding, then you must file a NM return. If there is no NM withholding, then you don’t need to.
Hi Jesse,
to make your live easier, just file as a resident of Indiana and a non resident of Illinois. Take a credit for tax paid to IL on your Indiana return. It will be easier and the tax will still come out right anyway.
Hi Tony,
I’m guessing that your W2 has Illinois withholding because your terminal is in Illinois. That’s why your software is forcing the Illinois return. I’d just file Illinois as a non-resident and take a credit on your Indiana return for tax paid to Illinois.
hi
lived and worked in 3 states(NJ- 4 months,MD-3months,FL-5months), was with 2 employers.
Since I got laid off from first employer he paid me for 8 months. Now I got 2 w2’s.
One for nj and second one for MD/FL.
Am not sure how I can differentiate resident income and non-resident income for NJ and for the time I was in florida still am getting pay check form NJ.
Is it ok to use turbo tax and file?
Reagards
Ram
I live in texas , i worked for a company that had its office in new mexico , but i was hired for a new office they opened in texas & worked in texas , but my w2 is from new mexico , do i file with new mexico if i never worked in that state or lived there? Help
Hi!
I lived in IL until 7/1/14, when I moved to IN. So I lived in both states for 6 months of the year.
I always worked in IL and all the income on my W-2 is my total wages, taxes withheld in IL.
I’ve already prepared my part time resident taxes for IL where I include ALL my wages. Now i’m working on my Indiana state taxes and have 2 questions:
– “Wages earned in another state while a resident of Indiana” for this I divided my wages in half since i lived in each state for exactly 6 months, is that correct?
Then that number would be what Indiana taxes since whatever I made in IL while living in IN is taxable so I would also put that number here: “Other State Income Taxed by Indiana “, right?
Any advise would be greatly appreciated.
Best!
I’m a CDL truck driver (subject to Hours of Service rules), living in Indiana. I drive for Wal-Mart and for the first 8 months of 2014, I got in my truck in Illinois (west of Chicago) and drove in a 5 state region (Indiana, Illinois, Wisconsin, Iowa, Michigan). In late August, I transferred to an Indiana terminal and now do the same thing out of that location. Last tax year, I only filed Indiana because I was told (by my employer) that it was not necessary to file for Illinois. This year, I’m having problems getting the tax software to realize that I did not live in one state and go to work (as in an office) in another state. Any advice?
Hi Amir,
File your Wisconsin tax return with your Wisconsin address.
Hi Robin,
It’s hard to gauge without any other information, but it could easily be right. You want to check to make sure that he gets a credit on his Illinois tax return for the tax that he paid to Indiana.
What I notice here in Missouri with the Illinois returns is that even though our tax rate here is higher, we get to claim a lot more deductions in Missouri. But with you, the Indiana tax rate is only 3.4% so it’s already lower than Illinois so the $1000 difference makes a lot of sense. (But still check the return to be sure.)
To prevent owing so much next year, he could make estimated tax payments to Illinois.
Hi Karina,
It sounds like your husband goes to work in Idaho every morning, so my gut reaction is that he is going to have to pay Idaho taxes. But I would contact a local preparer if I were you to double check on that.
Where I am, we’re on the border between Missouri and Illinois. Some companies split up the wages of their workers depending upon what state they’re actually working in. I suspect that if his W2 says Idaho–that’s how his income should be treated. But I’d get a second opinion if I were you.
Hi, I live in Wisconsin and work in Illinois. Because there is about 3 hours drive from my home to work, I rent a place in Illinois near work where I stay for 4 nights and then I drive back to Wisconsin for the weekend. My wife also lives in Wisconsin and goes to school there. As I read online, Wisconsin and Illinois have reciprocity agreement. However, my employer is not registered in Wisconsin and therefore put my Illinois rental apartment address as my address in my W2 form. They did not withhold any state tax from my income so the income tax box in my W2 shows zero. My question is how I should go about filing my tax and if I need to file any Illinois tax form or should I just fill out Wisconsin state tax form? I am a bit confused about how to proceed. I appreciate if you could give me some hint
So my son who is 28yrs old works for the USPS in Indiana and lives in Illinois, he recently went to have his taxes filed and was told that he owes Illinois $1005.00. Does that sound about right to you and if so what should he do in the future so that he doesn’t owe Illinois?
Are CDL truck drivers exempt? My husband is a local driver in WA state and this year his terminal was moved to across the state line into ID. I have been told he doesn’t have to pay state income tax no matter where his terminal is, but also noticed that on his W-2 there is wages under box 16 (ID). Help? I don’t want to pay out of state income tax if possible, but don’t want to NOT pay and get in trouble, either. Thank you!
@ Daniella,
glad the W2 is good.
About filing order. First, file the federal. Always to the federal first.
Second. since you’re going to file part year Mississippi and part year Michigan, it doesn’t matter which one is first.
If you decide to file as a Michigan resident, and Mississippi non-resident, then you would file MS first and MI second.
Hi Daniella,
First, and most importantly, your employer needs to fix your W2. If he was withholding MS tax, then you need a W2 that reflects that.
Second, you don’t own a house in Michigan, but do you have a residence there? Are your parents there? Do you have someplace to call home there? If yes, you can still claim to be a Michigan resident. If you have no place to call home, then you may as well claim Mississippi residency for now.
If you are a Michigan resident: you will file a Michigan resident return and a Mississippi non-resident return. File MS first. Then claim a credit on your MI return for taxes paid to MS.
If you really can’t claim MI residency, then file a part year return for MI and a part year return for MS. Claim the MI income that has MI withholding as your MI income. Claim the rest for MS.
For what it’s worth, just because you file your tax return as a Mississippi resident, it doesn’t mean you are not a Michigan girl. We may move all over the world, but our home is always where our hearts are.
Hi, pls ignore my question above. A separate MS W-2 was sent to me. However, I have another question:
My address on W2 is MS, so I guess I’m MS resident since I physically live and work here since March 2014. My situation was I lived in MI but worked in MS AND paid taxes to both states for the months of January and Feb 2014. Then beginning of March, I relocated to MS and changed my address w/ my employer. Since March 2014, I only paid taxes to MS.
Today, I received W-2 w/ all the Federal Information and MI tax withholding information (Jan & Feb 2014 withheld). I also received another w-2 w/ NO Federal Information recorded and MS tax w/holding (January 2014-Dec 2014 withheld). Please advise as to how I should file tax (using software preferably) as 2 separate W-2 or just one? And what state should I file first or doesn’t matter in my case? Thanks.
Hi, I am resident of MI, but worked in MS the entire year of 2014 (due to work relocation assignment). My employer withheld taxes for both states for the months of Jan and Feb 2014. Then from March to Dec 2014, only MS taxes were withheld. When I receive my W-2 2014, it only shows the MI withhold (2 months January and Feb). My final paystub, however, shows that I had again 2 months withheld from MI (Jan and Feb) AND MS withhold from Jan – Dec 2014.
Why does my W-2 only shows MI withhold of 2 months and not MS withhold of 12 months?
Finally, do I have to file taxes for both states and which one is my resident state? I thought MI is, but on according to my employer’s profile, it shows MS as my resident state as of Feb 2014. However, my W-2 shows no MS withholdings so how do I go about filing tax if my W-2 DOES NOT show any MS withholding? Is this a mistake or not on my employer’s part (major corporation) on my W-2? Again, my W-2 only shows 2 months of MI tax withheld.
In summary, my Dec 2014 paystub shows 2 months of MI withheld AND 12 months of MS tax withheld. My employer’s profile has me as MS resident. I am on a short term work assignment for 2 years and I don’t own a house in MI. So is my employer correct — am NOT MI resident? And if my employer indicates that I am MS resident, then why my W-2 only shows my MI withheld for 2014, and not the 12 months of withheld from MS as well? Finally, do I have to file tax with MS since my W-2 only shows I had MI withheld? In your opinion, am I currently MI or MS resident since I don’t own a house in MI, but will come back to MI when my assignment of 2 years are over.
Thank you
Hi Malik,
It is possible for Minnesota to levy your Illinois refund. It’s not as easy as if you were still in Minnesota, but they can do it if they want. Or they can go after your federal refund. (Going after the federal is much more likely.) It’s much more difficult for them to get your Illinois refund, but I have seen it happen before. I’m still thinking that it’s pretty rare though. I’ve only seen it once and it was between other states, not Minnesota and Illinois.
Hi Mr. Hight,
It sounds to me like the employee is working for you in the state of Maine, is that correct? If so, even though he lives in Massachusetts, he is taxed in Maine on his Maine income.
Now, if I’m wrong about that and he’s working for you while still in the State of Massachusetts, then you will want to withhold Massachusetts income. You’ll need to contact the state to set up a Massachusetts tax account for the withholding.
Hi I have a quick question I owe Mn revenue 1600 today I filed my 2013 taxes so I know for a fact that Mn will take that refund. But my question is for 2014 I work and live in Illinois so I will be doing my taxes in Illinois can the Mn revenue take my tax refund even though I am filing in Illinois
Hi my question is this, I owe minnesota revenue 1600 from school and a citation so I just filed my 2013 from working in Mn now I moved to Illinois I still owe the Mn revenue my question is this will Mn revenue be able to pick up my illinois tax refund and deduct what I owe them from that or since I am n a different state and work and live in Illinois that Mn cannot touch my 2014 refund
Hi,
As an employer in Maine is there anything the company needs to do regarding an employee that resides in MA and works for us in ME? What forms will he need to fill out as a resident in MA working in ME?
Thank you.
Hi Melissa,
Yep, you’re right!
GREAT POSTING first of all. It really helped me in figuring out my first issue with filing a multi-state return. My 2nd issue is a question regarding how the taxes are figured. I am a MO resident with income from IL only. My question is, besides the credit I get for IL tax, is that the only difference in computing stated taxes. As to say, if I was MO resident and I had all my income in MO it would figure the exact same way only there wouldn’t be a CR right?
Thank you in advance for your help!
Hi Richard,
I believe you will have to pay California tax. Now for most states, you would continue your Washington residence and file as living in two separate states. but with California rules, because you will be married, you will still pay California tax on your income.
I would check this with a California licensed tax preparer to make sure, but a few years back I handled someone’s audit who had a wife in Missouri but he was living in California. They hadn’t claimed her income for California taxes and they wound up having to pay California.
That’s not the normal system for most states, but California is different. And since you don’t pay Washington state tax, there’s no credit for tax you pay to California to balance your payment so it stings more.
Hi Selena,
I looked up the rules at the Wisconsin Department of Revenue site. (Okay, I went to Illinois first but I couldn’t find what I was looking for.) I tried pasting the page here but I couldn’t get that to work. Here’s a link though: http://www.revenue.wi.gov/pubs/pb121.pdf
The bottom line is – if you live in Illinois but work in Wisconsin, Wisconsin won’t tax your income. It’s only supposed to be taxed in Illinois.
So, you basically have two options. One, get your employer to withhold for Illinois, or if she can’t, then you’ll need to make the estimated tax payments to Illinois.
So, it sounds like you’ve been paying tax to Wisconsin when you shouldn’t have. What I would do is amend your Wisconsin returns and show that you should pay no Wisconsin tax as you are an Illinois resident.
Then, all of your Wisconsin income is taxed to Illinois. It’s a little different from paying tax of Wisconsin and then getting a credit for it on your Illinois tax return.
So when you file your 2014 tax return, Wisconsin should refund all of your WI withholding and you should pay the full Illinois tax to IL.
Now, about the penalty for not making estimated tax payments. You could try asking Illinois for an abatement of the penalty. I’m not sure of how much luck you’ll have. It’s worth asking. You might at least be able to persuade them to abate one year of penalty anyway.
So, if you want to file your returns correctly, you need to stop filing a Wisconsin return (although you have to file one for 2014 to get your money back, that’s what you should do) but arrange to not have any Wisconsin withholding for 2015.
Then in 2015, you will only file an Illinois return, and if you don’t have any Illinois withholding, then you really should make estimated tax payments.
Jan,
I live and work in Washington state where there is no state income tax. My girlfriend lives and works in California. We are getting married next year but I will continue to work full time in Washington while commuting to CA on the weekends.
Will I have to pay tax on my WA earnings to CA? Would it depend on whether or not I used my CA address as my residence?
Thanks
We live in Illinois but my husband works in Wisconsin. We are aware of the reciprocal between the two states but for the past three years have paid wisconsin tax, filed a wisconsin return and paid illinois. Now illinois says I must stop paying wisconsin and pay quarterly to Illinois and they are charging us penalty money for not paying them quarterly in the past. Am I by law required to stop filing two state returns and pay quarterly
Hi Kris,
Since you do all of the work remotely in Indiana, you should not have to file a California tax return at all. Your company should be withholding Indiana income taxes, not California.
That said, I’ve had other people contact me who worked remotely for California firms and had California withholding. If that happened to you, you’ll need to file a California return to claim a refund for the taxes that were withheld.
Or, if you’re traveling to California for work–then you’d need to file a California return for the wages you earn while in California.
But if you never set foot in the state, then you are filing an Indiana return only.
Hi Jan
I live and resides in Kokomo, IN and work remotely for a Calfiornia States (I am the only one allowed to work remotely) the office is San Francisco, CA.
Do i have to pay taxes for both states? my work state and my residence state?
Thank you for your time
Kris N
Hi David,
Good question. Yes, you can rent an apartment in Ohio. Your main home is still in Indiana.