Working in more than one state? You might need to file multiple tax returns.
- You need to file multiple state tax returns if you live in one state and work in another, moved states and employers, or received income property from a place you own in another state.
- A non-resident is someone who received income from a state but didn’t live there.
- Two states may have reciprocity agreements, which allow you not to file more than one return.
- However, even if the state you worked in doesn’t have an income tax, you still need to report the income on your home state return.
Many Americans are working remotely now, at least part of the time, and that means some have tax questions about working in more than one state. Other individuals work in one state regularly and live in another. Depending on your situation and your state’s tax laws, you may need to file more than one state tax return. Note that this situation doesn’t impact federal tax returns, only state returns.
Let’s walk through when you would file multiple tax returns and key considerations when working in various locations.
When to file multiple state tax returns
Taxes can get complicated quickly if you have multiple streams of income coming in or if you have to report business expenses on your tax return. Things get even more complex when you have worked in more than one state, though you may not always have to deal with multiple returns.
There are a few scenarios that require filing more than one state tax return:
- You moved during the applicable tax year: If you worked in two different states in a year because of a move and both states withheld income taxes, you must file two separate returns. Even if you worked remotely, you would still be considered a part-year resident in each.
- You work in a different state than where you live: Earning income in one state and residing in another may mean you need to file two tax returns, though you won’t have to pay taxes in both states unless you actually earned income in both. Reference the section below on reciprocity agreements, as well.
- You own income-generating property in another state: If you own a property in another state and received income from this property, you may need to file a separate state tax return for that income.
- You’re self-employed/own a business: Owning a business and working in more than one state means you’ll have to file multiple tax returns and may need to pay state income taxes in more than one place.
Note that if you work remotely for a company located in a different state than you, you usually don’t need to file two returns—only in the state where you worked.
What is a non-resident?
So, if your situation sounds like one of those above, you may need to file multiple state returns. In these cases, most states require you to file a “non-resident” state tax return where you worked but didn’t live that year. A non-resident is someone who received income from within a state but did not live there at all during the specific tax year.
However, each state has its own laws about determining residency status. Some require that you be physically present in the state for a certain number of days to be considered a resident. Others require that non-residents who earn income in a state file a separate schedule to report income there.
Make sure you check the reciprocity tax agreements for the states you’re living and working in. These agreements allow residents of other states to work there without having to file a non-resident tax return. States located next to one another often have these arrangements since people can cross over and work in the neighboring state more easily. The agreement basically says that you don’t have to file both returns as long as your employer withholds income tax in that other state.
Note that it might be a good idea to file a state tax return in the place where you worked, even if you don’t have to pay taxes there. This ensures you’ll get a refund if your employer withheld taxes from your income regardless of the reciprocity agreement.
You should never have to pay taxes twice on the same income, even if you work and live in states without reciprocity agreements. However, if you do, your home state will likely be able to provide a tax credit or adjustment for taxes you paid in other states.
What if my state doesn’t impose income tax?
It could also be the case that you work in a state without income tax. This list includes these nine states:
- New Hampshire
- South Dakota
Note that New Hampshire and Wyoming don’t tax earned income, but they do tax investment income. So even though you don’t have to pay income tax in these states, you still must report your earned income on your tax return for the home state and a federal tax return.
Consult with a tax expert about your state returns
Because we’re talking about state taxes here, remember that each state has its own set of tax laws. But generally, taxpayers have to file multiple state tax returns if they worked in more than one state. Reciprocity agreements may help you limit the returns you have to file, and you should never be paying state taxes twice on the same income. Working in multiple states doesn’t impact your federal tax return.
The Provident CPA and Business Advisors team helps taxpayers and small business owners pay the least amount of tax legally possible while devising comprehensive strategies. Reach out to our team today to get started.