When Do You Have to File Income Taxes in Another State?

If you commute across state lines, go on business trips, or do remote work, don’t be surprised by a tax bill from another state. Here are the basics of out of state filing requirements you need to know.

Commuting Across State Lines

One of the most common situations is workers who live in one state and commute to another on a daily basis. This happens frequently in the smaller states in the Northeast as well as anywhere people live near a state line.

Your employer will withhold state income taxes, and you will have to pay state income taxes, based on the employer’s state. You will also need to pay state income taxes for the state where you live but will usually receive a credit for the taxes you already paid.

Temporary Work In Other States

If you work one main job but travel to client locations in other states, you may have to pay income tax in those states. One of the most common examples is professional athletes getting taxed in each city they play in.

Each state with an income tax has its own reporting requirements based on factors like the number of days you spent in the state or the percentage of your income you earned there. If you meet the reporting requirements, you’ll pay taxes as if you were commuting into that state on the dates you were there.

Non-Employment Compensation

If you run a business, including independent contractors, there are two tests in play. The first is where you physically go to work and follows the same rules for workers above.

The second is if your business has a nexus in the state. A nexus is a connection such as having a physical business location there, having a high percentage of profits there, or having sales associates there. If you have a nexus, you will need to pay state income tax on the portion of your business profits earned in that state.

There are several provisions that could subject you to state income taxes in another state that may not be obvious to you. Be sure to talk to your tax professional about state income taxes if you have any connections to another state.

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