How to File Income Taxes in Two Separate States

Individuals often need to file income tax returns in more than one state, typically when living in one state and earning income in another, or when relocating during a tax year. Understanding the process simplifies multi-state tax filing.

Understanding Your Residency Status

Determining your residency status is a foundational step in accurately filing state income taxes, as it dictates which income a state can tax. States generally categorize individuals into one of three residency types for tax purposes.

A full-year resident is an individual whose permanent home is located within a particular state for the entire tax year.

A non-resident is an individual whose domicile is in one state but who earns income sourced from another state where they are not domiciled. For example, someone living in one state but regularly commuting to another for work would generally be considered a non-resident in the state where they work.

The third category is a part-year resident, which applies to individuals who change their domicile from one state to another during the tax year. This means an individual is considered a resident of the first state for part of the year and a resident of the second state for the remainder.

Identifying Taxable Income for Each State

After establishing your residency status, identify which income is taxable by each state. A resident state generally taxes all income earned by its residents, regardless of geographical source. This includes wages, self-employment income, retirement distributions, and investment gains, even if earned outside the state.

Conversely, a non-resident state limits its taxation to income directly sourced within its boundaries. This includes wages for work performed physically within that state, rental income from property located there, or business income from operations conducted there. Income from sources outside the non-resident state is generally not taxable by that state.

For part-year residents, income allocation involves a combination of these principles. Income earned during residency in a state is taxed as if they were a full-year resident. Income earned during non-residency is treated according to the non-resident sourcing rules for that state. This ensures only the appropriate portion of income is reported to each state based on residency periods and income source.

Claiming Credits for Taxes Paid to Other States

When income is taxed by more than one state, a “credit for taxes paid to another state” prevents double taxation. This credit mitigates the tax burden when an individual’s income is subject to taxation by both their resident state and a non-resident state where income was earned.

The resident state typically grants this credit because it taxes all of a resident’s income, regardless of source. If a portion of that income was also taxed by another state, the resident state provides a credit for the tax paid to that other state. This credit reduces the resident state’s tax liability by the amount paid to the non-resident state on the shared income.

The credit is generally limited. It cannot exceed the actual tax paid to the other state on the dually taxed income. The credit is also usually capped at the amount of tax the resident state would have imposed on that specific income. This limitation ensures the credit only offsets double taxation and does not result in a refund or reduction in tax liability beyond what is attributable to the shared income.

Preparing Your State Tax Returns

Preparing your state tax returns when filing in multiple states requires careful organization and adherence to specific procedures. Begin by gathering all necessary financial documents, including federal Forms W-2, various Forms 1099 for interest, dividends, or miscellaneous income, and Schedules K-1 from partnerships or S corporations. Copies of your prior year’s state tax returns and your completed federal income tax return are also important references for accurate preparation.

Each state provides specific tax forms tailored to different residency statuses. For instance, a state will typically have a main form for full-year residents, a different form for non-residents, and often a specialized form for part-year residents. Identifying the correct form for each state based on your determined residency status is a fundamental step. These forms often have specific lines or schedules for reporting income sourced to that state or for claiming credits.

The general order of preparation is to complete the non-resident state tax return(s) first. This is because the resident state often requires information from the non-resident return, specifically the amount of income taxed by the non-resident state and the tax paid on it, to calculate the credit for taxes paid to other states. Once the non-resident returns are prepared, you can then complete your resident state return, accurately entering the allocated income and applying the calculated credit. This sequence ensures all necessary data flows correctly between the returns.

Accurate data entry is important throughout this process. Ensure that only income sourced to the non-resident state is reported on its respective return. For your resident state return, report your total income and then apply the credit for taxes paid to the non-resident state on the appropriate line. After completing all entries, thoroughly review both returns for any mathematical errors or omissions before moving to the submission phase.

Submitting Your State Tax Returns

Once your state tax returns are meticulously prepared, the final step involves their submission to the respective state tax agencies. Several common methods are available for submitting state income tax returns. Electronic filing, or e-filing, is a widely used and often preferred method, offering speed and confirmation of receipt.

E-filing typically involves using tax preparation software or a state’s official online portal. When e-filing, you will verify your identity, confirm your banking information for any refunds or payments, and authorize the electronic submission. After successful transmission, you should receive an electronic confirmation, usually within 24 to 48 hours, indicating that your return has been accepted by the state.

Alternatively, you can submit your returns by mail. This method requires printing your completed tax forms, signing them as instructed, and ensuring all necessary schedules and supporting documents are attached. Use the mailing address specified in the form instructions, ensure sufficient postage, and consider sending it with a tracking service for proof of mailing. Always retain a complete copy of your filed returns and all supporting documentation for your records.

Any tax due can typically be paid electronically through the state’s online payment portal, directly debited from a bank account if e-filing, or by mailing a check or money order with a payment voucher. States often provide options for payment plans if you are unable to pay the full amount owed by the deadline. After submission, general processing times for refunds can range from a few days for e-filed returns to several weeks for mailed returns.