The Nonresident State Tax Return Filing Process

If you earn income in a state that you don’t live in, or if you receive any of type of income in another state, when tax times rolls around, you’ll likely have to file a nonresident tax return. The process doesn’t have to be complicated.

To start out, you have to determine the exact amount of money you earned in the other state, and how much of your income was earned within your home state. To make the process simpler, complete your federal return first, as you may need some information from the federal return.

Listing Income and Deductions

Most nonresident returns have two columns in which you will list your income. In the first column you’ll list your total income as per your federal return, while nonresident income is listed in the second column. Next, you use those totals to calculate the “nonresident percentage” which will help determine your deductions, tax liability and taxable income allocation.

Allocating Taxable Income

In some states, you determine your nonresident taxable income by first figuring out your taxable income as if you were a state resident. Next you multiply that total by your determined nonresident percentage to estimate your nonresident taxable income.

Allocating Deductions

In other states, you multiply your nonresident percentage by the total of federal deductions. The resulting amount is you nonresident amount, which you subtract from your nonresident income. There are some federal deductions which aren’t eligible for deduction at the state level, which will require you to account for them on your state return. However, you can add state deductions not available on federal returns.

Allocating Tax Liability

Your nonresident income can be offset by your federal in some states as long as you account for nondeductible expenses like state and local taxes. In these cases, your nonresident percentage is multiplied by your actual tax liability. The result is your nonresident tax liability.

Moving

During the tax year, you may relocate to another state. If this occurs, you may need to file a return, instead. Check the residency rules to determine which status you should file under.

Resident State

You will have to file a state return in your resident state, and you’ll have to include all income you made regardless of where it was earned. This includes out lf state earnings as well. Many states tax income for their residents no matter where it was earned.

In many states, residents are allotted a for any income taxes paid to a state in which they do not live. This credit is deducted on the return you file in your resident state.