Tax season may be the single best argument for living a simple life. Federal tax laws are esoteric, but state tax laws are a shame. Simply answer a simple question like “Where do I file my state income tax return?” It becomes a confusing maze for the average filer to hunt for answers. So, do you have to file taxes in multiple states? Let’s discuss.
This post answers frequently asked questions about filing multiple state tax returns. If you can’t find the answers you need here, consider consulting a tax expert. We’ve only scratched the surface here.
I live in one state but work across borders. where do you file?
The general rule of thumb is that you should file your taxes where you earned your money. This means that you must file a non-resident state return in the state where you worked.
If you have non-work income (interest, sideline income, etc.), declare it in your state.
Most people who live in one state and work in another must file two state income tax returns (one in the state they live in and one in the state they work in). ).
The main exception to this rule is if you work in states with reciprocity agreements. Reciprocity agreements are primarily a Midwestern and East Coast phenomenon. They only allow withholding and filing in the state where the employee resides. This greatly simplifies taxes. Thomson Reuters maintains an up-to-date list. All states with reciprocity agreements.
I work remotely, where do I file my income tax?
Where you earn money, you file and pay income tax. This means that her workers remotely file state income tax returns at their place of residence.
Traveling on business from time to time makes the water more murky. As an employee, your employer has withheld income in all relevant states. You must file income tax returns in all of these states (and your state of residence). Even if he only works one day in that state, he may still be in debt to the state. An extreme example of this is NFL players (and other professional athletes) who are obligated to pay taxes in each state in which they play.
Self-employed consultants face an even more troubling situation. Self-employed individuals file income returns in all states in which they have conducted business. If you were physically in a particular state, you probably need to file a return for that state.
Both TurboTax and H&R Block have extensive employment questionnaires to help clarify where you need to submit. Most people will find a software package to answer their questions (one notable exception this year is the credit karma tax, which doesn’t allow returns to multiple states). However, a traveling employee or business owner faces unique filing challenges. This is one area where tax professionals can help untangle complex revenue networks.
I work away from a state that doesn’t collect income tax. My employer is located in a state that collects income tax. do i owe someone money?
Alaska, Florida, South Dakota, Nevada, Texas, Washington and Wyoming do not collect income tax. If you live and work in these states, you are not required to file income tax returns in those states. This is true even if your employer’s physical headquarters is in a high tax state.
You do not need to file an income tax return unless your employer has withheld taxes in another state. Then you have to file to get your money back.
I own rental properties in three states and work in a fourth. Where do I file my state income tax return?
We love our passive income, but when it’s tax time, it can become a headache. If you own property outside the state in which you live, you must file state returns in all states that collect property income. Real estate costs, such as software and bookkeeping costs, must be prorated statewide to avoid double counting costs. You must also file income returns in the state where you work.
I moved in the middle of the year. where do you file?
If you move in the middle of the year, you must file state income taxes in both states you lived in. Each state allows people to file “semi-resident” returns. We pay taxes in both states.
how much will you pay It depends on how much you earn in each state. Generally, the state calculates the gross income he would have earned if he had lived in that state for one year. Then prorate your bill based on your actual income in the state.
Say you made $40,000 in Minnesota and $60,000 in Wisconsin.
If you made all $100,000 in Minnesota, you owe Minnesota $5,914 in state income taxes. But in Minnesota she only made 40% of her income. So you own her 40%*$5914 or $2366 in Minnesota.
If you earned all $100,000 in Wisconsin, you owe the state income tax of $5918 to Wisconsin. However, in Wisconsin he earned only 60% of his income. Therefore, Wisconsin owes 60%*$5918 or $3551.
My employer has withheld taxes in states where I don’t live or work. what should i do?
Payroll withholding is a surprisingly complex issue, especially for companies with employees in multiple states. If your employer withholds taxes in a state you don’t live in or work in, don’t panic.
You can file an income tax return in that state and get your money back. Next, you need to decide where (if applicable) you need to file your taxes.
I own an MLP and my K-1 has income in another state. Do I need to declare it?
MLPs can be a great investment, but they are certainly complex. Many MLPs operate in multiple states, especially pipeline companies like Kinder Morgan. In such cases, you may have tax liability in multiple states.
Again, there is no clear answer when submission is required. It depends. In some cases, you may not be obligated to pay taxes, but some states may require returns even if you are not obligated to pay taxes. It is important to know the requirements of each state. The great thing is that the MLP Association maintains a database of state tax laws on this. check out their website Check if you need to file a return.
If you have to pay a large amount of tax and are unsure of alternatives, it may make sense to consult a tax expert.
Do you have other income tax questions?