Earning money in multiple states is not uncommon, especially since many Americans have shifted to working remotely. It is understandable to be a little confused about the implications of any substantial work or life transitions on your taxes.
What if you worked in more than one state? You may need to file multiple state tax returns if you have earned income in several states or live in one state and work in another. These situations won’t impact your federal return, only your state tax returns.
Here is your guide to when you may need to file more than one state return and the steps you need to take to do it correctly.
When You Need to File Multiple State Tax Returns
Earning income in just one state in a given tax year means you probably don’t have to file multiple state tax returns, only in the state where you lived and worked. You may need to file more than one return if you have experienced one of these scenarios for a given year:
You Live and Work in Different States
You may work or have earned income from a different state than where you currently reside. You will typically not have to pay taxes in both of these states, but you might have to file two tax returns. Keep in mind, however, that reciprocity tax agreements will govern which state you need to pay taxes to. A state will set up these agreements when it agrees not to tax employee income if the employer withholds tax in the other state.
Note that working in one state remotely when your company is in another state will usually not require two tax returns. You will only need to file one return in the state where you work.
You Moved During the Year
You will need to file two separate state tax returns if you worked in two different states – and both withheld income taxes – because you moved during the applicable tax year. This will also apply if you worked remotely in both states, as you will likely be considered a part-year resident in each location.
You Own a Business and Worked in Multiple States
Federal income taxes won’t be impacted if you own a business and worked in multiple states, but you may need to file multiple state tax returns and pay state income taxes in multiple states.
You Own an Income Property Out of State
Do you own a property that generates income in another state? You will likely need to file a separate state tax return if so, and report any income you received for the year.
Remember that every state has different laws and requirements, including how they determine whether you’re a resident of the state. You are generally considered a nonresident of a state if you received income from that state but did not live there any time during the applicable tax year. These matters will not impact your federal tax return.
The only way to know for sure if you need to file multiple state tax returns is to research state tax laws and talk to a tax professional.
3 Steps to File Multiple State Tax Returns
Determining whether you need to file more than one state return is important, but it’s just the first step. It might be tempting to ignore the issue if you’re required to file multiple state tax returns, but that’s never a good idea in any area of tax law. Here are three easy steps to get your returns filed properly:
1. Complete an Exemption Request
Your filing process will be determined by whether the states you’re filing with have reciprocity agreements. States with this agreement in place allow you to request a state tax exemption, so taxes aren’t withheld in the state where you’re a nonresident but earned income. Fill out the exemption request form and submit it to your employer to avoid filing two returns. States without these agreements will require you to file multiple returns and pay taxes on earnings in each state.
2. File a Nonresident Return
You will need to file a nonresident state tax return first if you cannot request an exemption. This return is where you report all income earned in the state where you do not live.
3. File a Resident Return
The next step is filing a state tax return in the state where you reside, known as a resident return. This state should give you a tax credit for what you paid in the nonresident state to avoid double taxation on the applicable income.
Dealing with a move or job change can make it harder to stay on top of tax deadlines. Always make sure you pay and file on time each year, whether in one or multiple states, to avoid penalties. Remember that if federal tax deadlines change, that doesn’t necessarily mean the state return deadline changed. An experienced tax professional or attorney will help you ensure you’re filing everything correctly and on time.
Contact the Silver Tax Group Team With Questions
It isn’t always easy to understand your obligations if you work in multiple states, especially because tax laws can vary significantly in each state. Leave the logistics to the tax professionals, who understand all applicable tax laws in each region and will know all steps you need to take in your specific situation.
The tax attorneys at Silver Tax Group are here to help. We guide you through the filing process, ensuring that you are following all state laws and regulations. We will help you figure out whether you need to file multiple state tax returns or just one. We can also help with emergency tax services, unfiled tax returns, tax debt resolution, litigation and defense, and more.
Reach out to Silver Tax Group to speak with a tax expert about filing multiple state tax returns.