Two or More States

Posted by Bruce Mc on Jul 6, 2010 in Information, State/s, Tax Preparation | 2 comments

If you work in two different states, you will file a tax return in both the states. One state is your Home Tax State with the other state being where you were/are a  part year resident. Or as I get a lot of  here in Kansas City, You live in one state and work in another. In some cases, you may have even more states.  

 Last year I had a client (new) that lived in one state and worked in five states.   

(Interestingly enough that particular client had one W-2 and the employer withheld for all five states – Self-filers, would you know how to work that out?)

In the state that is not your tax home, you are part year resident or a non-resident; you report income you earned while in that state, to that state. If you have received only one W-2 from your employer, then use simple arithmetic based on number of days spent in the state to figure out the income that you should report to that state.   

(Of course, that in itself brings up a really interesting taxing issue. You paid your home state taxes that should have gone to the other.)

• Colorado - 4.63% 
• Illinois – 3% 
• Indiana – 3.4% 
• Massachusetts – 5.3% 
• Michigan – 4.35% 
• Pennsylvania - 3.07% 
• Utah – 5%. 

(The above rates may have changed) 

 Moving After Retirement 

If you are getting retirement benefits and you move/d from a state with no income tax to a state with income tax, then you must pay state income tax even on your retirement benefits.

 Non-resident Aliens and Exempt Individuals  

States define tax residence differently than the IRS does at the federal level. At the state level, there are generally three types of people:   

• Residents,
• Part-year residents and
• Non-residents

The determination of residence tends to be based on the time of year an individual moved into or out of a state, or if they lived there all year. It is entirely possible that a non-resident alien is considered a resident for tax purposes at the state level several years before they are considered a resident for federal tax purposes.   

Some states honor the federal tax treaty benefits. States the do not honor federal treaty benefits are Alabama, Arkansas, California, Connecticut, Hawaii, Kansas, Kentucky, Mississippi, New Jersey, North Dakota and Pennsylvania.  

It has been my experiences that if a taxpayer has a tax year where they need to file in more than one state, it is best if you visit with a tax professional to be sure you have all the information you need to file all the returns correctly. Of course, I recommend that any tax payer filing their own return visit with a tax professional to talk over their situation. Your situation might not have changed but the rules almost assuredly have.