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It's not unusual to live and work in a different state, particularly if you live in a major metro area. But it can be a pain figuring out how to deal with the tax implications of having a "home state" and a "work state."
But there's no need to panic — you’re not going to be paying twice as much in taxes. Read on for help on how to handle your taxes so that you don’t pay more than your fair share.
Some states have reciprocal agreements, meaning you can work in a neighboring state without having to pay taxes there. The following have reciprocal agreements, and additional info regarding these individual state exemptions can be found in the links.
- District of Columbia: If you don't live in D.C., you don't have to pay income tax for the district
- Illinois: Residents of Iowa, Kentucky, Michigan and Wisconsin are exempt
- Indiana: Residents of Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin are exempt
- Iowa: Residents of Illinois are exempt
- Kentucky: Residents of Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin are exempt
- Maryland: Residents of D.C., Pennsylvania, Virginia and West Virginia are exempt
- Michigan: Residents of Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin are exempt
- Minnesota: Residents of Michigan and North Dakota are exempt
- Montana: Residents of North Dakota are exempt
- New Jersey: Residents of Pennsylvania are exempt
- North Dakota: Residents of Minnesota and Montana are exempt
- Ohio: Residents of Indiana, Kentucky, Michigan, Pennsylvania and West Virginia are exempt
- Pennsylvania: Residents of Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia are exempt
- Virginia: Residents of D.C., Kentucky, Maryland, Pennsylvania and West Virginia are exempt
- West Virginia: Residents of Kentucky, Maryland, Ohio, Pennsylvania and Virginia are exempt
- Wisconsin: Residents of Illinois, Indiana, Kentucky and Michigan are exempt
If your work state has one of these agreements, you’ll need to fill out an exemption form. (If your work state is not on this list, check out the next section.) This exemption form will relieve you of the burden of paying income taxes to the state in which you work, so you only need to pay taxes to the state in which you live. There are different exemption forms to fill out depending on your state: Talk to your HR representative to obtain your correct form, or find your exemption form here.
Note: Even if you live and work in states that have a reciprocal agreement with each other, the reciprocal agreement only covers employment income. If you have non-employment income coming in from your work state, you will also have to file a nonresident tax return, despite the fact that there is a reciprocal agreement in place. (See below.) You should also consult with a properly qualified accountant or tax specialist for additional guidance on state-specific tax concerns.
If Your State Doesn't Have a Reciprocal Agreement
If the state you work in does not have a reciprocal agreement with your home state, you’ll have to file a resident tax return and a nonresident tax return.
- On your resident tax return (for your home state), you list all sources of income, including that which you earned out-of-state.
- On your nonresident tax return (for your work state), you only list the income that you made in that state.
In most cases, your home state will allow you to claim a tax credit on your resident tax form for the taxes that you paid to your work state.
You’ll also need to file a nonresident tax return if you have non-employment income from a state that is not your home state. Non-employment income includes, but may not be limited to:
- Income that comes from your role as a partner or officer in an LLC, partnership or S-corporation
- Income from services that you performed within another state
- Lottery or gambling winnings
- Income from property sales
- Income from rental properties
- Income from consulting or contract work
Now that wasn't too complicated, was it?