How to File Income Taxes When Living in One State & Working in Another

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Living in one state while working in another may just be a matter of a long commute on a day to day basis, but when it comes time to file your income taxes, that commute can equal a great deal of additional paperwork. While most states attempt to simplify the matter through the use of reciprocity agreements, exemptions and credits, it's up to you---the tax filer---to determine which simplification procedure fits your particular situation. After identifying the state with which you need to file, the rest is a fairly simple process of filling out the correct forms to ensure you're not double taxed.

Things You'll Need

  • Federal and state income tax forms
  • File Federal income taxes as normal, using the federal forms most suited to your work situation, usually a Form 1040. Use the income from your employer-supplied W-2 statement for income and withholding information.

  • Check with your state's tax commission to determine if your state has a reciprocity agreement with the state in which you work. A reciprocity agreement is an agreement between the states that exempts you from paying taxes in your work state, allowing yo to pay taxes only in your state of residence. File an exemption with your work state based on this agreement and present it to your employer to prevent the employer from withholding taxes within your work state. File state taxes only for your state of residence.

  • File a state income tax return for the state in which you work but do not reside if any money was withheld as state taxes in your work state. Obtain a nonresident form from that state when filing and claim the taxes withheld by that state as a refund due to your nonresident status. Pay the required state taxes for your nonresident state based on your earnings if no such exemption is available.

  • File state income taxes for the state that you do not work in but in which you have residency. Calculate the state taxes owed based on your earnings in the state that you work in and pay taxes to your state of residence in that amount. If you were required to pay taxes to your nonresident work state, check with your state of residence to determine if you may claim the taxes paid to the work state as a credit against taxes owed in your state of residence.

Tips & Warnings

  • File your federal and state taxes using tax preparation software to simplify the filing process in multiple state situations.
  • Closely follow the instructions on both the residency and work state tax forms to ensure that you aren't double-taxed on your income.

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