If you resided and worked in the same state this previous year, filing taxes is really not a complicated process. But how do you file taxes if you lived or worked in multiple states? Each state wants its fair share of your income, which implies that you may owe taxes to multiple states depending on your case.
The good news to bear in mind is that living or working in two or more states doesn’t have an effect on your federal tax return. However, you’ll have to steer through filing multiple state tax returns. Below, we shall be looking at the process for filing taxes if you lived in two states, and also how to file taxes if you worked in two different states.
Reasons You May Have to File Taxes in Multiple States
The reasons why you may end up having to file taxes in multiple states are numerous. Apart from owing taxes in multiple states for moving or working in a different state from the one where you live, you may also be required to file taxes in multiple states if you own rental property in another state or manage business in multiple states. We’ll go into each scenario in more detail below.
1. You work in a different state from where you live
If you live in one state but work in another, you may need to file taxes in both states. For instance, let’s assume you live somewhere in Connecticut, and commute to New York City every day for work. Or, let’s imagine you and your spouse are married filing jointly married, and one works in another state from where you two live. In these cases, filing taxes in two states is essential.
However, you usually don’t have to pay taxes in multiple states. Instead, the state where you work will most probably collect income taxes, and not the state where you live.
The reason why we say you usually don’t have to pay taxes in multiple states is because some states have reciprocal agreements. This means that two states have an agreement with each other that permit you to work in a neighboring state without being subject to taxation.
2. You moved to a new state
Another reason you may need to file taxes in multiple states is if you lived in one state and moved to another in that same year. For instance, if you and your spouse were living in Maine and decided to move to Florida to escape the cold, you may have to file multiple state tax returns.
However, this basically depends on a few criteria, such as whether both states held back income taxes from your paycheck, how long you worked in each state, and how long you lived in each state.
3. You conduct business in other states
If you’re an independent contractor and operate in multiple states, you may have to pay state income taxes to the states you work in. The more states you conduct business in, the harder and time-consuming it could be to file your state tax returns. This is why seeking out help from tax preparation services is important. They will assist you with preparing your income tax so you can be at peace knowing all bases are taken care of, no matter how many states you do business in.
4. You own rental property in another state
If you reside on the east coast and have a vacation home on Pacific you rent out during the summer months, or perhaps you possess a few properties in a college town the state over that you rent out to students, these income-producing properties may need you to file a separate tax return in that state.
How to File Taxes Residing in Multiple States
Now that you are aware of why you may have to file taxes in multiple states, it’s significant to know how to file taxes if you resided in two states. You never know where life is going to take you, and if you need to move to a neighboring state or across the country, you’ll still have to pay both states for residing within their lines.
Each state has its own separate criteria when it comes to collecting taxes, particularly for special cases such as new residents. However, most states follow a relatively similar process of having residents who lived less than a year in their state complete a part-year state tax return. While non-resident tax returns are for those residing in one state and working in another, part-year tax returns are for those who lived in more than one state during the course of a year.
When filing your part-year tax return for each state you resided in, you will have to divide your income and deductions up between the two states you lived in. However, each state will have its own allotment percentage, or one may need you to report all of your income, while the other state only requires you to report the income earned in their state. So, check your state’s tax laws to determine how to report your income.
How to File Taxes Working in Multiple States
When you get employed for any job, you will be required to file a W-4 Form to hold back a percentage of your paycheck for federal tax purposes. However, every state that collects income tax will have you file their own edition of Form W-4 to withhold state taxes. If you’re wondering how to file taxes if you worked in two different states, you’ll probably need to file a non-resident tax return to pay state taxes in that particular state. You are considered to be a non-resident if you have a permanent address in one state, but receive income in another state where you don’t live.
When it comes to filing taxes if you worked in two different states, confirm that the state you’re living in has a mutual agreement with the state you’re working in. Currently, there are sixteen states, along with the District of Columbia, who have mutual agreements.
If your state has a mutual agreement with another state, you won’t have to pay taxes in the state where you work. Rather, you will pay all of your taxes in your home state. However, ensure you submit an exemption form with your employer, so they know to withhold taxes from your paychecks by your work state.
If you live in a state that does not have a mutual agreement with the state you work in, you will simply file taxes following each state’s reporting requirements. However, this doesn’t suggest you will be taxed twice. Rather, you will receive a tax credit from your residence state for the taxes you paid in the state you worked in. If you resided and worked in the same state this previous year, filing taxes is really not a complicated process. But how do you file taxes if you lived or worked in multiple states? Each state wants its fair share of your income, which implies that you may owe taxes to multiple states depending on your case.
The good news to bear in mind is that living or working in two or more states doesn’t have an effect on your federal tax return. However, you’ll have to steer through filing multiple state tax returns. Below, we shall be looking at the process for filing taxes if you lived in two states, and also how to file taxes if you worked in two different states.
Reasons You May Have to File Taxes in Multiple States
The reasons why you may end up having to file taxes in multiple states are numerous. Apart from owing taxes in multiple states for moving or working in a different state from the one where you live, you may also be required to file taxes in multiple states if you own rental property in another state or manage business in multiple states. We’ll go into each scenario in more detail below.
1. You work in a different state from where you live
If you live in one state but work in another, you may need to file taxes in both states. For instance, let’s assume you live somewhere in Connecticut, and commute to New York City every day for work. Or, let’s imagine you and your spouse are married filing jointly married, and one works in another state from where you two live. In these cases, filing taxes in two states is essential.
However, you usually don’t have to pay taxes in multiple states. Instead, the state where you work will most probably collect income taxes, and not the state where you live.
The reason why we say you usually don’t have to pay taxes in multiple states is because some states have reciprocal agreements. This means that two states have an agreement with each other that permit you to work in a neighboring state without being subject to taxation.
2. You moved to a new state
Another reason you may need to file taxes in multiple states is if you lived in one state and moved to another in that same year. For instance, if you and your spouse were living in Maine and decided to move to Florida to escape the cold, you may have to file multiple state tax returns.
However, this basically depends on a few criteria, such as whether both states held back income taxes from your paycheck, how long you worked in each state, and how long you lived in each state.
3. You conduct business in other states
If you’re an independent contractor and operate in multiple states, you may have to pay state income taxes to the states you work in. The more states you conduct business in, the harder and time-consuming it could be to file your state tax returns. This is why seeking out help from tax preparation services is important. They will assist you with preparing your income tax so you can be at peace knowing all bases are taken care of, no matter how many states you do business in.
4. You own rental property in another state
If you reside on the east coast and have a vacation home on Pacific you rent out during the summer months, or perhaps you possess a few properties in a college town the state over that you rent out to students, these income-producing properties may need you to file a separate tax return in that state.
How to File Taxes Residing in Multiple States
Now that you are aware of why you may have to file taxes in multiple states, it’s significant to know how to file taxes if you resided in two states. You never know where life is going to take you, and if you need to move to a neighboring state or across the country, you’ll still have to pay both states for residing within their lines.
Each state has its own separate criteria when it comes to collecting taxes, particularly for special cases such as new residents. However, most states follow a relatively similar process of having residents who lived less than a year in their state complete a part-year state tax return. While non-resident tax returns are for those residing in one state and working in another, part-year tax returns are for those who lived in more than one state during the course of a year.
When filing your part-year tax return for each state you resided in, you will have to divide your income and deductions up between the two states you lived in. However, each state will have its own allotment percentage, or one may need you to report all of your income, while the other state only requires you to report the income earned in their state. So, check your state’s tax laws to determine how to report your income.
How to File Taxes Working in Multiple States
When you get employed for any job, you will be required to file a W-4 Form to hold back a percentage of your paycheck for federal tax purposes. However, every state that collects income tax will have you file their own edition of Form W-4 to withhold state taxes. If you’re wondering how to file taxes if you worked in two different states, you’ll probably need to file a non-resident tax return to pay state taxes in that particular state. You are considered to be a non-resident if you have a permanent address in one state, but receive income in another state where you don’t live.
When it comes to filing taxes if you worked in two different states, confirm that the state you’re living in has a mutual agreement with the state you’re working in. Currently, there are sixteen states, along with the District of Columbia, who have mutual agreements.
If your state has a mutual agreement with another state, you won’t have to pay taxes in the state where you work. Rather, you will pay all of your taxes in your home state. However, ensure you submit an exemption form with your employer, so they know to withhold taxes from your paychecks by your work state.
If you live in a state that does not have a mutual agreement with the state you work in, you will simply file taxes following each state’s reporting requirements. However, this doesn’t suggest you will be taxed twice. Rather, you will receive a tax credit from your residence state for the taxes you paid in the state you worked in.