Tax & regulations I live in one state and work in another: How do I pay income tax?

First there was the pandemic. Then came the “Great Resignation.” All of the job losses, job turnover and new opportunities seized over the past few years have meant a lot of moves made – literally – to different states.¹ In early 2022, the real estate market was so crazy (January 2022 was the hottest January in recorded history)² due in large part to rapid job turnover and the newfound ability for many people in corporate America to work from home or “work from anywhere.”

While this unprecedented level of locational freedom can be an incredible thing that allows us more time with family, a bigger backyard, a lower cost of living and more, it can also become a complicated picture when it comes to state income taxes. For example, if you live in one state but work in another, how do you file and where?

While the pandemic put a fresh limelight on potentially needing to file multiple tax returns if you live and work in different states, the rule itself is nothing new. For decades, anyone who moved mid-year or who lived in one state but drove across state lines to get to work has had to, depending on the states involved, file more than one return.

When do I have to file taxes in two states?

Some states have state tax reciprocity agreements designed to help simplify the tax obligations of individuals commuting across state lines for work. Put simply, state tax reciprocity means you can live in one state and work in another without being taxed in your work state. Instead, you only pay taxes to the state you live in. If no relevant state tax reciprocity agreement exists between your residence state and work state, you may need to file taxes in both.

To determine if the states you live and work in are reciprocal tax states, consider consulting a qualified tax professional. They may be able to provide you with more detailed information on whether a reciprocal agreement exists between your residence state and work state. Your job’s HR department may also be able to provide additional guidance specific to your situation.

How to file taxes if you live in one state and work in another

If you’ve been living in a different state from your employer or office the entire tax year, then in addition to filing an income tax return in your home state, you may also need to file a “non-resident” income tax return for the state your job is located in. This generally certifies that, while you earned income in that state, you did not live there for any length of time.³ However, you may not need to file a “non-resident” state income tax return if your job is in one of the nine states that generally doesn't impose state income tax (including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming) or if it has a reciprocal tax agreement that you qualify for.⁴

Your tax preparer can let you know the specifics for your states, but don’t assume that reciprocity will apply to you automatically.

In order to ensure you are not taxed by multiple states on the same income, your residence state will generally allow you to claim a credit based on the income taxes you paid to other states with respect to income sourced in such states. Note, however, that this credit may not be exactly equal to the taxes you paid.

How to file taxes if you moved states

If you were living in the same state as your employer for some portion of the year (even a single day) and then permanently moved to another state, you’ll be known as a “part-year” resident and may have to file a part-year resident tax return in both states. This is generally required unless you happen to live in or have moved to one of the states that doesn’t impose income tax.⁵

If you are starting a job halfway through the tax year and become a part-year resident in another state, it’s helpful to look at each state’s individual rules to figure out what portion of your income will be taxable per state. In this case, you’ll complete what’s known as an “apportionment schedule,” which is a form that’s found in your state’s return for “non-residents” or “part-year” residents. Once you get your apportionment percentage, you’ll use that for your calculations for that state’s taxes for the year.⁶ While some states will separate the income you earned while living in their state from the income you earned while living in another state, others may calculate the tax you owe on all income earned as if you were a full-time resident and then calculate what you owe based on the apportionment percentage.

A few exceptions to the rule

There are a few potential exceptions that you may want to keep in mind. For instance, if you moved mid-year and still own a home in the same state as your employer, or if you still have a driver’s license or a voting registration in the same state as your employer, then those things can be taken into consideration when you file, and this may affect which states you’ll owe taxes in (or which state you’ll owe the most).⁷

The 183-day rule

Some states have what’s known as the 183-day rule, which essentially considers you a full-time tax resident of that state if you resided there for 183 days or more during the calendar year.⁸ Your tax preparer should be able to help you do the math to calculate your exact number of days as a resident under applicable state law.

Moving or working out of state: Key considerations

Although this may seem like a lot to process if you’ve never dealt with it previously, don’t stress – your situation is nothing a good tax preparer hasn’t seen before. If you’ve got questions about where to begin, one of the best places to start is with your employer. Your W-2 form not only shows your federal tax details – it will also show your state withholding.⁹ If you informed your employer of your residency change, then your employer should have been withholding taxes for you in that state.

Here are some practical steps you can take after moving:

• Make sure you inform your employer on your move and provide a new W-4 and any state or local withholding forms.
• Consider if you need to adjust your employer’s state tax withholding or make any estimated state tax payments.
• Keep a journal of the days living and days working in each state to facilitate state income tax apportionment.

The bottom line

Living and working in two different states is not uncommon, but it may require a little extra management when it comes to tax season. In some cases, state tax reciprocity agreements may provide the convenience of only filing a single return (usually for the state you live in). Without a reciprocity agreement, or if you moved halfway through the tax year, you may need to file taxes in both states depending on the specifics of your situation. For instance, if you lived in your new state for 183 days or more, you may be considered a full-time resident and be taxed accordingly. As with anything else around tax season, make sure you double check the rules of each applicable state – which may vary from state to state and are subject to change – and consult a tax professional with any questions.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice and is for general information purposes only. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.