The Internal Revenue Service collects federal tax returns from workers across the U.S., but individual states may also collect income taxes. Even if you don't live in a particular state, you may be required to file an income tax return to the state if you worked there or earned income from the state through other business activities.
State Tax Basics
States impose taxes that are separate from federal income taxes. In general, if you earn income from a state that you do not live in, you must still file an income tax return with that state. There may be exceptions if you earn a very small amount of income from states outside your home state. If you earn income from many different states, you may have to file several nonresident state tax returns.
Ways to Earn Out-of-State Income
There are several common ways taxpayers may earn out-of-state income and have to file tax returns to states other than their states of residence. If you earn wages in a state other than your home state, you will have to file a nonresident tax return. Members of partnerships that have operations in other states, shareholders of S corporations that conduct business in other states, beneficiaries of trusts or estates that earn interest in other states and those who earn rental income or gambling winnings in other states may have to file nonresident income tax returns.
Filing Nonresident Returns
If you are required to file tax returns to states other than your home state, you must be careful that you don't overpay. When filing tax returns to multiple states, you should begin by filing your federal tax return. Then file returns for each nonresident state based on the income earned from each state, not your total income. Finally, file the return for the state you live in last. You may be able to deduct the income taxes paid to other states on your home state's tax return.
Workers frequently get new jobs and move across state lines. If you worked and lived in one state for part of the year and a different state for another part of the year, you may have to file a "part-year" state return for each state that you lived in. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not impose taxes on earned income.
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