Many tax payers have the luxury of filing a state tax return quickly and easily by basically adding one extra step to filing their federal return. Tax software simply copies the information from the federal return to the state return and both returns are filed in no time.
But what happens if you have a return to file in more than one state? This situation may arise if you moved to another state during the tax year, or if you work in a state that is different from the one in which you live. State taxes can have a more complicated side for individuals who must file a return in multiple states.
State tax returns come in three types:
- Resident – the state where you live
- Part-Year Resident – a state in which you lived for a portion of the year (moving to/from)
- Nonresident – a state where you did not reside but have earned income
Depending on your situation, you will meet one of the above categories and can determine which state tax return you need to file.
You file a resident return for the state where you live. Your home state taxes all your income, no matter where you earned it. In many cases, taxpayers live and work in the same state, but this is not always true. Taxpayers who find themselves in different states often, first need to determine where they are a resident.
Residency is defined differently by each state, and certain criteria must be met in order to claim yourself a resident of a specific state for tax purposes. You can find more information on each state’s tax residency requirements by visiting the website of the appropriate state for your situation.
Be aware that if you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, and are considered a resident, you aren’t required to file a tax return as these nine states do not have income tax.
Part-Year Resident Return
If you moved to another state during the tax year, you’ll need to file a part-year resident return. If you were a resident of one state and then became a resident of another, you’ll need to file a part-year resident return for each state.
This type of return taxes all your income for the time you spent as a resident in the state. For example: In January of 2016 you lived in New Jersey. As the summer (July) rolled around, you permanently relocated to New York. You’d be required to file a part-year resident return for New Jersey on all the income you earned from January to July. For July to December, you’ll file a part-year resident return for all the money you earned in New York.
Nonresident returns are used for taxpayers who earn money in any state other than the one in which they live. This type of return only taxes the income earned in the state.
For example: You live in New Jersey, but you are employed in New York. For the state of New Jersey, you’ll file a resident return, which taxes ALL your income. You’ll also have to file a nonresident return for New York, owing taxes on the income you earned in the state.
While it may seem like you are paying taxes on the same income twice, you’re given the ability to claim a credit for the taxes paid to a nonresident state via withholdings. The states will automatically do the rest.
If a state withholds any taxes from your salary, and it is not your home state, you must file a nonresident return to receive a refund of the money. Whether it’s the result of a payroll department mistake, or the company is headquartered in another state than the one where you work, you must actually file a nonresident return.
In most cases, you’ll only have to file a return in the states in which you live and earn income, if those two are not the same.