Can I File Taxes in a Different State?

State income tax obligations can become complex when individuals have connections to more than one state. Unlike federal taxes, which apply uniformly across the nation, state tax rules vary significantly depending on where income is earned and where an individual resides. Understanding these distinctions helps taxpayers navigate the requirements that arise from living, working, or owning property in different states.

Understanding State Residency for Tax Purposes

Determining state residency for tax purposes involves two primary concepts: domicile and statutory residency. Domicile is an individual’s permanent home, where they intend to return after temporary absences, and where they maintain their most significant connections. Factors states commonly consider when determining domicile include voter registration, driver’s license state, primary home address, family location, bank accounts, and professional licenses.

While a person can only have one domicile, they can be considered a resident of multiple states for tax purposes through statutory residency. This is often established by spending a certain amount of time in a state, even if it is not one’s domicile. Many states use a 183-day rule, meaning if an individual spends more than 183 days of the taxable year in a state, they may be considered a statutory resident. Some states may count any part of a day spent in the state towards this threshold, while others might have different day counts or specific exceptions. States also consider whether an individual maintains a “permanent place of abode” within their borders for a substantial period, indicating a strong tie to the state.

Income Sourced to Different States

States assert the right to tax income earned within their borders, regardless of where the taxpayer resides. This is known as “income sourcing.” Wages, for example, are typically sourced to the state where the work is physically performed. If an individual lives in one state but commutes to another for work, the state where the work is performed may tax that income.

Rental income from property is sourced to the state where the property is located. Business income is sourced to the state where activities are conducted. Gains from real property sales are sourced to the state where the property is situated. For remote workers, some states have “convenience of the employer” rules. These rules dictate that if an employee works remotely for their own convenience, their income may still be sourced to the employer’s state. This can lead to income being taxed by both the resident state and the employer’s state.

Filing Requirements for Multiple States

When financial activities span multiple states, individuals may face various state income tax filing requirements. The type of return needed depends on residency status and where income was earned. Common state returns include resident, non-resident, and part-year resident returns. A resident return is filed in the state where an individual is domiciled, typically covering all income earned regardless of its source.

A non-resident return is required in states where income was earned but the individual was not a resident, covering only the income sourced to that state. If an individual changes their domicile during the tax year, they may need to file a part-year resident return in both the old and new states. Accurate records of income earned in each state and precise dates of residency changes are important for part-year filers. Each state also has specific filing thresholds and deadlines.

Credits for Taxes Paid to Other States

To prevent double taxation on the same income, many states offer a “credit for taxes paid to other states.” This credit allows a resident state to provide a tax credit for income taxes paid to a non-resident state on the same income.

The credit is limited to the amount of tax the resident state would have imposed on that income, ensuring it does not exceed the resident state’s own tax liability on the shared income. While this credit helps reduce the impact of multi-state taxation, it may not completely eliminate it, especially if the non-resident state has a higher tax rate. The credit applies to individual income taxes, not other types of taxes like property or license taxes. To claim the credit, taxpayers typically complete the non-resident state return first, then use that information to calculate the credit on their resident state return.