Title says it all. If I lived near a state border and worked in a different state, do I pay income tax to my home state or my work state, or some fractional scheme?
Generally you file & pay income tax to your state of residence first. Then you file as non-resident in the state you work in, but you get to take the amount of tax you paid to your state of residence as a tax credit, and only pay the difference. If the amount of tax you paid to your state of residence is greater than the tax bill for your work state, you don’t pay anything to the work state, but you still have to file.
Muldoonthief has got it as right as anyone can get it without knowing which two states you’re talking about. Laws vary from one state to the next.
I live in Texas and work in Louisiana, the state of Louisiana takes taxes out of my checks because my income is “derived from Louisiana sources”. Every year I think I’m going to get a refund from LA but apparently it does not work that way, they seem to take money in only.
Unclviny
Yeah, you gotta love that, huh? It’s similar with city taxes as well. You don’t live in the city, and you don’t get to vote in the city, but you sure get to pay taxes to the city, and the city sure loves you coming in to work so they can take a chunk of your check and give you basically nothing.
What if your state of residence has higher income tax than the state where you work?
It’s not necessarily as simple as which state has a higher or lower tax rate. I think muldoonthief addressed your question in his reply, but he did say “generally,” and as dracoi pointed out it really varies (often substantially) depending on which states are involved. Any single answer to your question is going to be wrong for many states.
Yep. Some states (or districts - the District of Columbia occasionally makes noise about instituting a commuter tax) tax income earned there, even by non-residents.
I worked in New York City (Manhattan) in the early 90s, while remaining a resident of Virginia (I commuted home on weekends). I had to file a NY city and state income tax return and pay them taxes on whatever I’d earned there. Then I filed a Virginia return, and claimed partial credit for what I’d paid to NY state.
A lot of states, however, have reciprocity agreements of one sort or another.
When I worked in the District of Columbia, however, DC never saw a dime of my income tax money - it all goes to Richmond. I could commute to a job in Maryland and not pay taxes there, either, just to Virginia.
I found it to be the opposite - I paid tax to the work location first, then got a credit with the residence location.
Example: say I earned 50,000 and Typo Knig also earned 50,000, and the Virginia tax rate was 5. And the New York state tax rate was 12%.
I’d pay New York 6,000 bucks (12% of 50,000).
Our total tax bill to Virginia would be 5,000 (5% OF 100,000).
As half of our total Virginia income was derived from income taxed in NY, I got to claim a credit for the portion of my income that was taxed in NY. Only, at Virginia rates. So I didn’t get credit for 6,000 dollars, I got credit for 2,500 (as 50,000 is half of 100,000). Net tax due Virginia, 2,500.
I know I did that wrong the first year and claimed the 6,000 getting a much larger refund than we were really due; a year or so later we got a note from Virginia’s department of revenue requesting we pay the additional taxes. Whoops!
Same income, but let’s say New York’s state tax was 1%. So my tax paid to NY was 500 dollars. I’d claim the 500 as a credit against the Virginia tax, giving me a net tax due of 4,500.
Basically it’s set up so that you pay the most possible on that two-state income, sigh…
I live in Colorado and work in New Mexico. My taxes are deducted for NM and at the end of the year I got a credit for what I paid NM but had to pay the additional CO taxes (NM’s rate is about .8% lower).
Anyone know what the situation is for working in North Carolina and living in South Carolina?
For a while, I went to college in Ohio but kept Michigan as my permanent residence. The two states have a reciprocity agreement, where the state where a person works won’t charge income taxes if they pay taxes to the residency state. For my various campus jobs, there weren’t any withholdings for Ohio taxes, but I was expected to file a tax return in Michigan and pay up at that time.
Good question! I tried googling it and had zero luck getting a straight answer. At least, the worst you’ll be on the hook for is the higher of the two income taxes and neither of those states is especially high.
Basically nothing? Bull!
Who do you think built & maintains those roads you use to ‘come in’ to work?
Who provides a police force so you don’t get mugged in the city?
Who provides a fire department so your workplace doesn’t burn down?
Who provides the water system that feeds the drinking fountains at work?
Who provides the sewer system that serves the restrooms at work?
Who provides food inspectors so the restaurant lunch you eat is safe?
Who provides building inspectors so your workplace has emergency exits & a fire alarm?
Who built the sidewalks you walk on when you take a break at work? And the park or plaza you walk to?
Who paid for the traffic lights on the streets, and pays for the electricity that runs them?
Etc. …
Gotta’ love those suburban parasites, who come into the city to earn money, then flee out to their little havens at night to avoid paying their fair share!
I was going to disagree-but then realized it depends on the state. In my case, live in La. and work in MS, I pay income taxes in MS and take a full credit to my La. taxes. The two happen to balance so I end up only paying taxes in one state. This is opposite of what is stated here, so it does depend on the states.
I actually agree with this reasoning. I had less issue with paying taxes to NYC than I’d have expected, as I really did use the city’s infrastructure etc. Similarly with the District of Columbia though their hands are tied by Congress, plus all the big employers would start to flee to the suburbs (not as easy to do in NYC, I imagine).
Well to be fair some of these are generally paid for by the property tax which is being paid by the company for which the person works.
Gee I wonder why DC has never managed to tax non-residents. I assume such a tax would have to be passed by Congress. I don’t suppose it has anything to do with members of Congress not wanting to be subject to that tax, do you?
I live in SC and work in GA. My employer takes out GA income tax, and SC applies a tax credit when we file. My wife works in SC, and we generally get back refunds from both states, though not much in GA.
It’s hardly fair to call suburban commuters parasites. They usually get taxed at the same rate as reisdents, but only use the city services part time, not 24/7. And they aren’t residents, so they can’t vote for the people in charge of those services and taxes. Seems a bit of a “no taxation without representation” thing to me.
I expect that local income taxes are quite an issue for professional athletes. I remember reading that when a football team comes to play a game against the Patriots, it’s figured that 1/16th of their yearly salary (because they play 16 games in a season) is said to be earned in Massachusetts; and that they owe the state income tax based on those earnings. Assuming their other away games are in states with similar rules, their tax returns must be a nightmare.