Question

What Do I Need to Know About Filing Taxes in Two States?

Answer

Moving out of state during the year? Working in one state and living in another? There are several reasons you might file taxes in two states come tax time. We’ve outlined a few situations to illustrate how it can impact your state taxes.

Filing Taxes When You’ve Lived in Two Different States

How you file taxes for the two different states you lived in will depend on several factors, including: 

  • Which state is considered the source of the income
  • Specific states involved
  • If you changed jobs or kept the same one
  • If there’s a reciprocity agreement between the states involved

You’ll likely file a part-year resident return in both states. Usually, you’ll have to file a state return in any states that you:

  • Have earned income from wages or self-employment
  • Have property that produces income

Before you begin to file taxes, check the residency rules for each different state you’ve lived in. Some states consider you a full-year resident if you’re present in the state for at least 183 days. 

If you’re filing two part-year resident returns, check the rules for each state on what income to report. Income from interest, dividends, and pensions is usually considered to be from your state of residence. 

Some states will have you report your income from all sources, just like a full-year resident does. Then, after you calculate the tax, this amount will be reduced based on the income you made as a resident. Other states will have you split the income between states before calculating the tax.

Note for those using H&R Block programs: We recommend you complete your part-year resident or nonresident return before you begin your resident return. Your completed part-year resident or nonresident return might come in handy when you’re completing your resident return.

Filing Taxes for Multiple States When You Work Across State Lines

Some taxpayers find themselves filing taxes in multiple states when they live in one state and work in a neighboring state. If this is you, how you file depends on if the states have a reciprocity agreement, which allows you to request a withholding exemption for your nonresident state.  

You might also have to ask your employer to withhold taxes for your resident state or make estimated tax payments to the state you live in.

If both states collect income taxes and don’t have a reciprocity agreement, you’ll have to pay taxes on your earnings in both states:

  • First, file a nonresident return for the state where you work. You’ll need information from this return to properly file your return in your home state.
  • Next, file a resident return for the state where you live. To prevent double-taxing, the state where you live will usually give you a credit for taxes paid to the nonresident state.

Since each state’s tax rules are different, check the rules for your states before preparing your taxes. 

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