If you pay taxes to another state for income earned within that state, but it is not the state in which you reside, you will be filing a nonresident tax return. Usually you have to file these returns in addition to returns four income earned in your home state. Here’s what you need to know to determine whether not you should file a nonresident state tax return.
You’ll meet the file and nonresident return if any of the following are true:
- You’ve earned income in a state that you are not a resident of. For example, a resident of Pennsylvania who works in New York State would file a resident tax return in Pennsylvania, and the nonresident return for New York.
- State taxes were withheld for an incorrect state and you need a refund.
- You have non-employment income from sources outside your home state.
Nonresident Non-employment Taxable Income
Generally, income earned within a state is taxed by that state regardless of whether or not the person earning income is a state resident. You don’t actually have to work in a state. There are some forms of non-employment income that is taxable for nonresidents:
- Income earned as a partner in an LLC, a partnership, or an S corporation. You’ll be taxed in the state where the company is headquartered. This does not apply to employees of a corporation, only to partners.
- Income earned from performing services in the state. This is common near state borders, where someone, such as a repairman, may cross state lines to perform maintenance on someone’s home.
- Consulting or contacting, or carrying on a business, profession, trade, or occupation in another state.
Some states have special agreements in which residents of the states to which they hold agreements with are allowed to work in their state without being taxed. You won’t have to file on nonresident tax return if you live in a state that has a reciprocal tax agreement with the state in which you work. Generally, these agreements only cover earned income, meaning money you made from employment. You can file for a refund using a nonresident state return in instances where tax was withheld in a state in which you do not live.