Crossing The Border – A Taxpayer’s Guide To Living And Working In Different States

While hardly anyone actually enjoys doing taxes, it's an even more arduous task when you cross state borders for work and residency. If you're among the millions who have to address complications with state residency, here's a handy guide to how it affects your taxes.

Living and Working in Separate States

If you live near the border between your state and its neighbor, you may end up with a job in one and a home in the other. The good news is that states generally understand that this can occur, and they have a system for dealing with the taxes. Wages are generally taxed by the state in which they are earned, but you may also be subject to income tax filing in your home state because you're a resident there. If you work in more than one state during the year -- such as field or construction workers on job sites -- you may find that you have to file tax returns in multiple states.


Neighboring states often have an agreement called "reciprocity", which means that they have agreed to pay each other income taxes due rather than making taxpayers deal with it. If your state has a reciprocity agreement with the state in which you work, you can often fill out an exemption form in order to avoid having withholding taken from your check. You can find a list of states with such arrangements here

Filing as a Nonresident

If the two states involved in your case don't have this standing arrangement, you will likely need to file as a resident on your home state and a nonresident in the state you work in. But, all is not lost. Most states' tax forms will ask taxpayers if they (or their spouse) are being taxed on the same income by another state. If so, they allow a credit (a deduction in state income tax due) either for the tax paid to the other state or the income being subjected to the other taxes. This will reduce your tax bill to one or the other state and help equalize things. However, if your home state has no income tax (such as Wyoming or Washington), you will likely receive no credit against the income tax due where you work. 

Obviously, it's easiest to deal with state taxes if you can get an exemption from filing there. But, if you do end up having to do multiple state income tax returns, you may want to consult with an accountant with experience in multi-state tax issues. Failing to understand how to properly file in this circumstance can cost hundreds or thousands of dollars in overstated tax bills... so it's worth the investment in professional help during tax time. For more information, contact companies like Zara Rhone CPA Inc.