10 Feb, 2021

Living In One State, Working In Another Income Tax

Living In One State, Working In Another Income Tax
Written by: - Phil Baker

With nearly three-quarters of American households paying income tax or payroll tax, there is every chance you need to do the same. Many people have that question on their mind - how to handle living in one state working in another income tax. As in, “How do I file a tax return while living in one state and working in another?”
This is a complicated income tax question. This article will go into how to manage state income tax working in another state and answer any questions you may have. 

How Do I Handle Income Tax While Working In Another State?

Filing income tax in multiple states broadly relates to where you have worked. Your income tax relates to where you both live and work. If you live in one state and work in another, it may create a complicated income tax situation. You may need to file your income tax in both of these states. Similarly, you may have to resolve living in one state and working in another income tax due to having moved partway through the year.
This is even if it was only for a very short amount of time, such as being an intern. The IRS will track your state income tax working in another state and need you to handle the taxes for both locations. Also, if you earn income in any other state, such as owning a business in that location, you may need to file income tax in those locations.
This is regardless of if you have worked or lived there in person. Remember to check a guide for self-employed taxes if you have further questions on this complicated income tax situation. It will help you answer the question of "How do I handle income tax working in another state?"

Do All States Need To Do This?

Most of the states in the USA do require you to report and pay your taxes. Not all of them do, however. Nine states do not require you to charge income tax at all. The following is the list of states that follow this pattern: 

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

For these states, you do not need to worry about living in one state working in another income tax. Therefore your tax returns will only need to be reporting and payment for the states that do charge.

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What Is A Reciprocal Tax Agreement?

Not all states will require you to file separate returns. Several states have understandings called a “reciprocal tax agreement”. Many of these states border one another, so if the state you work in is not bordering the other it may not be true. Are you concerned about the question, "How do I handle income tax working in another state?".
You do not need to worry about “living in one state working in another” income tax if you are from the following locations. Although you will need to investigate the tax rules of these states yourself and research where to get tax exemption forms:

  • Arizona
  • District of Columbia
  • Illinois
  • Indiana:
  • Iowa
  • Kentucky
  • Maryland
  • Michigan
  • Minnesota
  • Montana
  • New Jersey
  • North Dakota
  • Ohio
  • Pennsylvania
  • Virginia
  • West Virginia
  • Wisconsin

As an example, for Arizona, you will need a W-2 form. When creating w2 and paying taxes you can use online forms to assist you.

How Do I File A Tax Return While Living in One State and Working in Another?

If you have moved between states during the year, you should investigate claiming part-year residence. This is also true if you worry about state income tax working in another state. This is a method by which you can separate your income into what you earned before moving and after moving. You should contact your local authority to see how living in one state working in another income tax works for you.
Especially when preparing for taxes filing in 2021. A common question people have about their taxes is “how do I file a tax return while living in one state and working in another?”. Fortunately, we have the answer. If you did not live in the other state and did not work there at all, you can file income tax as a “non-resident return”.
This will make it clear to the state’s IRS department that you do not need to pay as a resident of that location. You can do this to stop your situation from becoming a complicated income tax dilemma. It also allows you to separate your taxation more effectively.

What About The Military?

You may not have to worry about the question "How do I handle income tax working in another state?" if you are in the military. The nature of the military and moving around can get complicated. Being stationed in multiple locations means military members have specific tax rules. This is true living in one state working in another income tax.
If you are a member of the military, you will have to choose a state in which you are a legal resident. This will be the state in which you pay income tax. To avoid you needing to solve complicated income tax issues, this will mean you will be exempt from paying taxes in the state in which you are stationed in. You can rest assured that the military will resolve the tax situation in your stationed location.

What If My Partner Works In Another State?

If your partner has concerns about state income tax working in another state, you can assure them that the issue is simple. Simply put:

  • Report your income on the state you work in
  • Report your partner’s income on the state they work in
  • Report both your incomes in the state you live in.

This will separate your income tax appropriately into yours and your partners. That way, you can ask "How do I handle income tax working in another state?" separately.

Where Do I Start?

Hopefully the above has allowed you to answer questions such as “How do I file a tax return while living in one state and working in another?” If you have further questions, we would recommend that you browse through our documents and see if any of them are useful to you in this situation. be sure to also check out this guide on tax regulations and charitable donations. Happy stress-free tax filing! Find out also how you can get federal paystubs.

In case you need a new beginning, you might want to find out the best countries to start a business. In addition, it's worthwhile to understand how paystubs abbreviations works and how w2 works in relation to filling in the tax form.

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