What Determines Which State Income Tax You Pay?
Tax law becomes very complicated when you live or work in more than one state. Usually, the law will require you to file multiple returns, but numerous exceptions exist. Also, states often handle the same situations differently, complicating matters further. Not all states collect an income tax, but if you work in such a state, you may still need to file a return.
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Working in One State and Living in Another
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If you work in one state and live in another, you generally must pay state income tax to the state where you work. Meanwhile, you must pay state unemployment insurance to the state where you live. That's the bottom line. You must usually file returns in both states.
However, some states make exceptions if you earn a small amount of income. Also, some states have reciprocity agreements with one another so that you may consolidate your returns. These and other laws make it possible that you will not have to file returns in both states --- but this is something you will have to investigate.
Working in Multiple States
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If you earn income in multiple states, you generally must pay tax to each state on the income you specifically earned there. This applies to all types of income, not just paychecks. For example, if you inherit property or sell a house, you may have to file an income tax return in the state where that property resides.
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Living in Multiple States
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As for living in multiple states, usually, you will only be a legal resident of one state at a time --- the state where you spend the most time and have the most attachments, such as property and registrations. That is the state to which you will pay taxes, such as the unemployment tax. However, some states have partial residency statuses for people who spend a lot of time living there, and you may have to file returns for those states even if you earn no income there.
Resources and Assistance
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Modern tax software available through the Internet can help you figure out what you owe and to whom, especially if your circumstances are straightforward. Any employers you may have can provide you with guidance on the taxes you would owe on income earned at each job. State government websites publish information on their tax codes and provide contact information for you to get assistance. However, if your circumstances are new or significantly complex, you should strongly consider hiring a tax professional to help you with your returns.
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