What State Do I File Taxes In If I Have Multi-State Income?

State tax laws dictate where individuals must file income tax returns, which becomes complex when a person has connections to multiple states in a single tax year. Each jurisdiction has its own regulations for determining who owes taxes and on what income. Understanding these principles is the first step in managing these requirements.

Determining Your State of Residence for Tax Purposes

States use two primary methods to determine residency for tax purposes: domicile and statutory residency. Your domicile is your permanent home, the place you intend to return to after any absence. An individual can only have one domicile, and it does not change until you take steps to abandon it and establish a new one.

State tax authorities examine various factors to determine your domicile:

• The state that issued your driver’s license
• Where your vehicles are registered
• Where you are registered to vote
• The location of your primary bank accounts
• Where you receive mail
• The location of your family and valued personal belongings

Even if your domicile is in one state, you can be a “statutory resident” of another for tax purposes. This occurs if you spend more than 183 days of the year in that state and maintain a “permanent place of abode” there. A permanent place of abode is a dwelling you maintain that is suitable for year-round use.

For most states applying the 183-day rule, any part of a day spent in the state counts as a full day. Taxpayers must prove they did not exceed this threshold, which requires detailed records like travel logs. Failing to track your days can result in being classified as a resident in two states, subjecting your income to taxation in both.

Filing Requirements for Multi-State Scenarios

Living in One State and Working in Another

When living in one state and working in another, you must file two state tax returns. You file a resident return in your home state, reporting all income from all sources. You also file a nonresident return in your work state, reporting only the income earned there.

Some neighboring states simplify this with tax reciprocity agreements. These allow you to request an exemption from tax withholding in your work state, meaning you only file and pay taxes in your state of residence.

To use a reciprocity agreement, you must file an exemption certificate with your employer. States with these agreements include:

• Arizona
• Illinois
• Iowa
• Kentucky
• Maryland
• Michigan
• Minnesota
• Montana
• New Jersey
• North Dakota
• Ohio
• Pennsylvania
• Virginia
• West Virginia
• Wisconsin
• The District of Columbia

Moving to a New State During the Year

If you permanently move to a new state during the tax year, you are a part-year resident in both your old and new states. You must file a part-year resident return in each state, assuming both have an income tax.

On each part-year return, you report the income earned while you were a resident of that state. For example, if you moved on June 30, you would report income earned before that date on your old state’s return and income earned after on your new state’s return.

Calculation methods can vary, as some states require you to calculate tax as a full-year resident and then prorate it based on your residency period.

Earning Income from a Non-Resident State

You may need to file a nonresident tax return for income sourced from a state where you did not physically work. For example, rental income from a property you own in another state is sourced to where the property is located, requiring a nonresident return to report it.

This requirement extends to other activities. If you are a partner in a business or a shareholder in an S corporation, you may need to file a nonresident return where the entity operates. Winnings from gambling or profits from selling property in another state also require a nonresident filing.

Special Rules for Specific Groups

Military Service Members and Spouses

Federal law provides tax protections for military members. Under the Servicemembers Civil Relief Act (SCRA), a service member’s domicile does not change just because they are stationed in a new state on military orders. They continue to file taxes in their home state, and their military pay is not taxed by the state where they are stationed.

The Military Spouses Residency Relief Act (MSRRA) extends similar protections to the spouse. A spouse who moves to a new state due to military orders can choose their residency for tax purposes. They may select the service member’s state of residence, their own, or the state where the service member is stationed.

College Students

A college student’s domicile usually remains their parents’ home, as attending college out-of-state is considered a temporary absence. The student is treated as a resident of their home state for tax purposes.

If a student works a job in their college state, they must file a nonresident return there to report those wages, in addition to a resident return in their home state.

A student’s residency can change if they take steps to establish a new domicile in their college state. Actions like registering to vote or getting a local driver’s license can be evidence of intent to change domicile.

Remote Workers

For remote workers, income is sourced to the location where the work is physically performed. If you live and work in one state for a company in another, you owe taxes only to your state of residence. This is complicated by the “convenience of the employer” rule.

This rule states that if you work remotely for your own convenience, not your employer’s necessity, your income is treated as earned at your employer’s location. This can result in you owing taxes to your employer’s state even if you never work there.

Several states apply a form of this rule, including:

• Alabama
• Connecticut
• Delaware
• Nebraska
• New Jersey
• New York
• Oregon
• Pennsylvania

Some states apply it on a reciprocal basis, affecting only remote workers whose home states have a similar rule. For example, if you work remotely for a New York-based company for personal convenience, New York will tax your income.

Managing Tax Obligations Across States

To prevent double taxation, your home state provides a credit for taxes paid to another state. This credit is a direct reduction of your tax liability to your home state, ensuring the same income is not taxed twice.

To claim this credit, you must first complete the nonresident tax return for the state where you earned the income. The tax liability calculated on that return is the amount you use for the credit, not the amount withheld from your paychecks.

Next, you prepare your resident state tax return, reporting all income from every source. After calculating the tax owed to your home state, you claim the credit for taxes paid to the nonresident state. You will need to attach a copy of the nonresident state’s return to substantiate the credit.

The credit is limited and cannot exceed the tax your home state would have charged on that same income. You claim the lesser of the actual tax paid to the other state or the tax your home state would have imposed on that out-of-state income.