possibly you moved to a more rural area where COVID wasn ’ t spreading as fast. possibly you got laid off and had to find a fresh job. possibly you ’ re frame surfing with a relative to save money. Whatever the rationality you do it, your taxes can get complicated if you live in one submit and shape in another .
We ’ ll be honest : This is a tax scenario with a lot of ifs and buts, and it can be street fighter to wrap your brain around all the rules. Don ’ thyroxine worry though — we ’ rhenium here to help you through it. Let ’ s jump right in .
Do You Pay Taxes Where You Live or Where you Work?
The short answer is : it depends. First, the well news. Congress passed a law in 2015 that forbids double tax. This means that if you live in one state and make in another, lone one state can tax you. You may still have to pay income tax to more than one state, but you can ’ triiodothyronine be taxed twice on the lapp money. You won ’ t need to worry about paying income tax in multiple states, even if you have to file more than one return.
When you live in one country and work in another, the state where you work normally gets to tax you and will withhold the appropriate amount from your paycheck each workweek. In this position, you will have to pay out of state taxes .
At the end of the year, you will file two returns. You ’ ll file a nonresident department of state return in the state you worked. On it, list alone the income you earned in that state and merely the tax you paid to that state .
You ’ ll then file a nonmigratory department of state return in the country where you live. On this come back you will list all of your income, even that which you earned out of state of matter. Don ’ thymine worry though. There is normally a place on the rejoinder where you can report and get credit for the taxes you paid to your work state of matter .
note that this is frequently the room things work – you plainly pay tax in the state where you work. As always, however, things aren ’ triiodothyronine quite so dim-witted when the tax man cometh. Things are unlike if the two states you ’ ra dealing with have a reciprocal cross agreement, sometimes referred to as a reciprocity agreement .
How Reciprocal Agreements Work
Although it may begin to feel like it when you start asking questions at tax time, you ’ re not the alone one who lives in one country and works in another. Some states have planned for this and created reciprocity agreements to make your life easy. Through these agreements, you can live in one state of matter and work in a neighbor state without paying taxes there. alternatively of paying taxes where you work, you will pay taxes in your nonmigratory state, which is the state where you live .
Pennsylvania and New Jersey, for model, have such an agreement. If you live in Pennsylvania but bring in New Jersey, you pay your tax to Pennsylvania where you live. New Jersey will not withhold any state money from your paycheck. They will of course continue to withhold federal taxes as required .
seventeen different states have these types of agreements in put, so it ’ mho worth asking your employer if one applies to your position. Your company ’ s payroll department should absolutely know about any applicable reciprocity agreements. If they don ’ deoxythymidine monophosphate, your state ’ sulfur Department of Revenue office will .
note that in decree to take advantage of these agreements, you must file an exemption class. In our exemplar, you would file an exemption form in New Jersey so that your employer there doesn ’ triiodothyronine withhold state taxes from your income earned. You would just pay the tax yourself to the state you live in. In this event, remember that most taxes are “ wage as you go ” taxes. You may have to make calculate tax payments to your state of matter of residency throughout the year if no employer is withholding them for you .
Don ’ triiodothyronine panic if your employer makes a err. Let ’ s say you start your fresh problem in New Jersey and file a tax exemption shape because you live in Pennsylvania. person made a mistake, however, and the payroll department didn ’ triiodothyronine get the memo. When you get your paycheck, you see that your employer withheld New Jersey income tax from your check tied though they weren ’ metric ton supposed to .
There are two ways to fix this issue, and neither is complicated. You can ask the payroll department to correct the erroneousness and refund you the money. If no one in payroll can figure out how to make the computer do that, you can plainly wait until the end of the year. At tax time, you ’ ll file a Pennsylvania tax return key and pay what you owe. You ’ ll besides file a nonresident state tax reelect in New Jersey requesting a refund of the taxes you mistakenly paid .
How Long Do You Have to Live in a State to File Taxes?
Continuing with our Pennsylvania and New Jersey model, let ’ s again pretend that you live in Pennsylvania and work in New Jersey. There is a public transportation system that runs buses between the two states, but they ’ ve in truth cut back their service during COVID. To combat this, you go and stay with your cousin in New Jersey temporarily to be closer to work .
Because you live in Pennsylvania, and because of the reciprocality agreement, you normally don ’ t give tax to New Jersey. But how long can you live there before New Jersey wants your tax money alternatively of seeing it go to Pennsylvania ?
Although it can vary by state, it ’ south park for a state to want taxes from you if you ’ ve stay there for more than half the year, or for 183 days. These days don ’ triiodothyronine inevitably need to be consecutive. You can bounce back and forth between one state and another, but once you ’ ve been around for more than 6 months most states want their cut of your money. early states use different criteria to decide when to tax you.
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Some allow you to work in the state anywhere from 2 to 60 days before they start withholding tax. Others will start taxing you after you earn a certain dollar amount. Some use both criteria. In Georgia, for example, you must have state taxes withheld from your pay up after you ’ ve worked more than 23 days, earned more than $ 5,000 or earned 5 percentage or more of your income for the class in Georgia .
eminence that these rules dictate when a state starts withholding taxes from your paycheck — not necessarily when you owe them tax. If you work in Georgia for 25 days, for exemplar, they may start withholding state taxes from your pay. If you then stop working in Georgia after day 25, they may not get to keep the money. In that font, you would simply file a return asking for a refund .
How to File Taxes if You Lived in Two States
If you ’ ve moved your permanent savoir-faire from one state to another during the tax class, take kernel. The tax situation international relations and security network ’ metric ton all that complicated if you keep thoroughly records. Write down the exact date of your motivate and tuck the information in a safe place until tax meter .
At the end of the class, you ’ ll have to file taxes in both your old and new state as a part-year resident. States make it very easy to do this. Most have a credit line on the revert where you can mark whether you were a full moon or part-year nonmigratory. If you specify that you were a part-year resident, you will have to list which dates you lived where and pro-rate your income .
If you deal with states that all enjoy reciprocity agreements, nothing will change but your address. Let ’ s say you work in Maryland but live in West Virginia. Thanks to reciprocal agreements, you would pay your taxes to West Virginia where you live .
now let ’ s say you move to Pennsylvania but keep your caper in Maryland. Because Pennsylvania and Maryland besides have a reciprocality agreement, you would now pay your tax to Pennsylvania. If you moved halfway through the class, you ’ ll pay up 6 months ’ worth of tax to West Virginia and 6 months to Pennsylvania .
now let ’ s go back to our master example. If you live in Pennsylvania and work in New Jersey, you pay tax where you live because the two states have a reciprocity agreement. Six months into the year, you decide to move to New York. New York and New Jersey do not have an agreement. In this case, you would pay the first 6 months of tax to Pennsylvania where you lived and the survive 6 months to New Jersey where you worked .
How Can I Avoid Paying Duplicate Taxes if I am Required to File in More Than One State?
If you need to file a return key in more than one state, your beginning footstep is to determine who you owe the tax to. once you know who you owe, you can properly file your returns and know who to pay and who to ask for a refund .
Your W-2 and other end of the class statements will clearly outline who you paid taxes to. If you paid person you shouldn ’ thymine have, plainly file a refund in that state requesting a refund. If you didn ’ triiodothyronine pay a state where you do owe, calculate the sum of tax due and file a return key with a requital .
Remember that although all this tax farce may be new to you, the state tax offices deal with these issues every day. They know what states they enjoy reciprocality agreements with and they understand the tax laws. If you live in Pennsylvania but work in New Jersey and New Jersey unintentionally withheld tax from you, the tax office in New Jersey won ’ deoxythymidine monophosphate be surprised when you file a nonresident fall and ask for a refund .
Can I Still File Jointly if My Spouse Worked in a Different State Than I Did?
If you and your spouse worked in unlike states, you can hush file your returns jointly. Report merely your income in the state where you worked and report only your spouse ’ second income in the submit where they worked. On your nonmigratory tax return for the state you live, you will list both of your incomes. If either of you is due credit for taxes paid in another state, it will appear on your resident return. If either of you owe tax to your nonmigratory submit, it will besides get calculated here .
There is no harm in filing separate state tax returns if it makes you feel full, but doing so international relations and security network ’ thymine necessity. Be aware that although it ’ second legal to file jointly on your union come back but individually on your state returns, many tax planning software programs get confused by this. There are often workarounds that you can use to get the problem done, but the process may prove arduous and time-consuming. You may need to read several help and FAQ files to learn how to do this since every program is different.
Get Professional Advice
If you ’ ve got it now and can count yourself as a tax guru when it comes to living and working in separate states, that ’ s fantastic. If you ’ re even confused, we understand. Like many tax topics, this one is complicated and your situation may have caveats that we didn ’ thyroxine traverse here .
At Picnic, our net of CPA ’ s understands that you merely can ’ t take a one-size-fits-all approach to taxes. We ’ ra here to help you navigate your personal tax questions based on your alone situation and we ’ rhenium felicitous to help. Don ’ thymine hesitate to reach out to us. We can help you make sure you pay what you owe and get back what you don ’ triiodothyronine .