Share this!

arizona state line - filing taxes when you live and work in different states

How to File Taxes When You Live And Work in Different States

Written by Tax Defense Network March 13, 2026

read

Overview

If you live in one state but work in another, you may need to file two state tax returns — one where you live and one where you earn income. Each state has its own tax rules, filing requirements, and tax rates, which can make multi-state filing confusing. The good news is that most states provide credits or reciprocity agreements to prevent double taxation.

Key Takeaways

If there’s a “reciprocal agreement” between your home state and the state where you work, you might only need to file taxes in your resident state, avoiding withholding in the work state.
Without reciprocity, you’ll file a resident return in your home state (reporting all income) and a non-resident return in your work state (for wages earned there).
To prevent “double taxation,” your home state will generally allow a credit for taxes paid to the work state on the income taxed there.

Do You Have to File Taxes in Two States?

If you live in one state but work in another, you may need to file two state tax returns.

Generally, you will file:

a non-resident tax return in the state where you worked to report income earned there, and
a resident tax return in the state where you live, reporting all of your income.

To prevent double taxation, your resident state will usually allow a tax credit for taxes paid to another state on the same income. However, if the two states have a reciprocity agreement, you may only need to file in your home state.

How Do You Determine Your State Tax Residency?

Determining your residency status when you live in one place but work in another can be complicated and depends on the specific rules of each state. Generally, most states consider the following factors when determining your residency status:

Domicile: Your domicile is your permanent legal residence, and it is generally determined by the state where you have the strongest connections, such as where you own a home, where your family lives, or where you vote.
Physical Presence: If you spend a significant amount of time in a state, you may be considered a resident for tax purposes, even if you do not have a domicile in that state.
Intention: Your intention to establish residency in a state can also be a factor. For example, if you move to a new state with the intention of staying permanently, you may be considered a resident of that state for tax purposes.
Source of Income: If you earn income in another state, you may need to file a non-resident tax return there, even if you are not considered a resident of that state.
Connections to Other States: If you have connections to multiple states, such as owning property or having family members in different states, the state where you have the strongest connections may be considered your residency for tax purposes.

To determine your residency status in a state, you should review the specific rules and regulations of that state. It’s important to note that residency rules can vary between states, and you may be required to file tax returns in multiple states if you have income from different sources.

What Income Is Taxed When You Work in Another State?

When paying state income taxes as a full-time resident, you generally need to report and pay taxes on all income that you earned during the tax year. As a part-time resident or non-resident, however, you are typically only required to pay taxes on income earned within the state’s borders. The specific rules for what income sources are considered for tax purposes, however, may vary depending on the state in question.

Here are some common types of income that may be considered when paying state income taxes as a non-resident or part-time resident:

Wages and salaries earned within the state
Income from self-employment or business activities conducted within the state
Rental income from property located within the state
Income from investments, such as interest, dividends, and capital gains, earned within the state
Income earned from performing services within the state, such as consulting, speaking engagements, or other professional services

It’s important to note that different states may have different rules for what income sources are taxable. For example, some states may exclude certain types of income, such as retirement income or military pay, from taxation. If you’re unsure which income sources are taxable in a particular state, consult with a tax professional or check with the state’s tax authority.

What Are State Reciprocity Agreements or Withholding Exceptions?

Reciprocity agreements allow residents of certain states to work in another state without paying income tax to that state. Sixteen states and the District of Columbia have this type of tax agreement or withholding exemption.

Residents Of:	Working In:
CA, IN, OR, VA	Arizona
IA, KY, MI, WI	Illinois
KY, MI, OH, PA, WI	Indiana
IL	Iowa
IL, IN, MI, OH, VA, WV, WI	Kentucky
DC, PA, VA, WV	Maryland
IL, IN, KY, MN, OH, WI	Michigan
MI, ND	Minnesota
ND	Montana
PA	New Jersey
MN, MT	North Dakota
IN, KY, MI, PA, WV	Ohio
IN, MD, NJ, OH, VA, WV	Pennsylvania
DC, KY, MD, PA, WV	Virginia
KY, MD, OH, PA, VA	West Virginia
IL, IN, KY, MI	Wisconsin
Any state	District of Columbia

Generally, you must file an exemption form with your employer to avoid having taxes withheld by the state where you work. For example, those living in Pennsylvania but working in New Jersey would complete Form NJ-165.

Since these agreements may change over time, it’s a good idea to check with each state’s tax authority to confirm the current status of any reciprocity agreements. Additionally, even if your state has a reciprocity agreement with another state, you may still need to file a tax return in both states if you have income from sources outside of your employer, such as rental income or investments.

Which State Tax Returns & Forms Will You Need?

When filing taxes in two different states, you’ll need to provide certain forms to each state’s tax authority. Here are some of the most common forms you may need:

W-2: Your employer is required to provide you with a W-2 form that shows your total wages, tips, and other compensation for the year. You will need to use this form to report your income to both states.
1099: If you are self-employed or received income from other sources, you may receive a 1099 form. This form shows the total amount of income you received from a payer and the type of income.
Non-Resident State Tax Return: If you are a non-resident in one of the states, you will need to file a non-resident state tax return. This form will help you report your income earned in that state and calculate the amount of tax owed.
Resident State Tax Return: If you are a resident in one of the states, you will need to file a resident state tax return. This form will help you report all your income, including income earned in the other state, and calculate the amount of tax owed.
Schedule(s) Showing Income Allocation: Depending on the state’s rules, you may need to fill out a schedule or form that shows how your income is allocated between the two states.

Remember that tax rules can vary between states, so it is important to consult with a tax professional or review the specific tax requirements for each state in which you earned income to ensure that you file your taxes accurately and on time.

Don’t Forget to Claim Credits and Deductions!

The deductions and tax credits you can claim when working and living in different states will depend on a variety of factors, including the states involved and your individual circumstances. The following is a list of some of the most common deductions and credits that may apply:

State Income Tax Paid: You may be able to deduct the state income tax you paid to one state from your taxable income in the other state. This can help you avoid double taxation on the same income.
State & Local Sales Tax: If you live in a state with no income tax or you made large purchases, you may be able to claim a deduction for state and local sales tax paid instead of income tax paid.
Retirement Plan Contributions: If you contribute to a retirement plan, such as a 401(k) or IRA, you may be able to deduct those contributions from your taxable income in both states.
Child and Dependent Care Credit: If you pay for child or dependent care expenses while working, you may be eligible for a tax credit in both states.
Earned Income Tax Credit (EITC): If you have a low or moderate income, you may be eligible for the EITC, which can reduce your federal income tax liability and may also be available in some states.

Since each state has its own rules and regulations, be sure to review the specific tax requirements for each state in which you earned income to ensure that you are taking advantage of all available deductions and credits.

Convenience of the Employer Rule & Remote Work

During COVID, many people switched to remote work. As a result, some states adopted the “convenience of the employer rule,” which may result in double taxation for some taxpayers.

What is The Convenience of The Employer Rule?

The convenience of the employer rule requires employees living in a different state from their employer’s place of business to pay taxes in both states, but there are some exceptions.

You won’t be required to pay taxes in both states if:

You reside in a state with no income tax, or
Your employer requires you to work in another state.

Those who work remotely in another state by choice, however, may be subject to double taxation.

States That Impose The Convenience of The Employer Rule

Currently, only seven states impose some level of the convenience of the employer rule.

Alabama, Delaware, Nebraska, New York, and Pennsylvania have full convenience rules within their tax codes.

Two states, Connecticut and New Jersey, limit the rule to non-residents who reside in states with their own convenience rules.

Although there have been many challenges to this rule, the courts have not sided with the taxpayers, and the rule continues to be upheld.

What Happens If You Filed Taxes With The Wrong State?

If you live in one state and work in another but only file with your home state, you may still owe taxes to the state where the income was earned.

When this happens, the work state may send a notice requesting:

A non-resident tax return
Additional tax payments
Penalties and interest

This typically occurs because states share wage information through your Form W-2, which shows where the income was earned. In many cases, the issue can be resolved by filing the correct non-resident return and claiming credit for taxes paid to another state on your resident return.

Received a Tax Notice? Don’t Panic

Many taxpayers who reside in one state and work in another forget to file or file incorrectly. If you’ve received a notice that you failed to submit a necessary return, it may be possible to:

File the missing state returns
Reduce assessed penalties
Resolve any unpaid taxes through a payment plan

A tax professional can review your situation and help you find the best course of action.

FAQs: Living in One State and Working in Another

Do I have to file taxes in two states if I live in one and work in another?

Most likely. You typically file a non-resident return in the state where you work and a resident return in your home state. Your home state usually provides credit for taxes paid to the other state to avoid double taxation.

I moved to a new state in the middle of the year. Which state do I file my income taxes in?

If you moved from one state to another during the tax year, you may need to file:

Part-year resident return for your old state
Part-year resident return for your new state

Each state will only tax the income earned while you were a resident.

Do I Have to File Taxes in Two States if I Work Remotely?

If you work remotely in a different state than your employer, your tax obligation depends on where the work is performed and whether the employer’s state applies the convenience of the employer rule. In many cases, you will only pay tax where the work is performed, but some states may still tax income based on the employer’s location.

I’m a resident of California, but I spend several weeks working in Arizona. Do I need to pay income taxes in Arizona, too?

Not necessarily. Arizona allows qualifying residents of California, Indiana, Oregon, and Virginia to submit Form WEC so their Arizona employer does not withhold Arizona income tax from their wages.

I am a resident of Florida and travel the country selling plant items at local fairs and craft events. Do I need to pay income taxes in the states where I sell?

You may be required to file a non-resident income tax return in the states where you earned money. Additionally, you’ll likely need to register as a temporary vendor in each state and remit sales tax for any items sold.

What happens if I don’t file an income tax return in the state where I worked and only file in the state where I live?

Generally, you must file a non-resident income tax return in the state where you worked. If you don’t, you may be hit with penalties and interest fees, as well as collection actions.

What if I live in a state with no income tax?

If you live in a state without income tax (such as Florida, Texas, or Nevada) but work in another state that does impose income tax, you generally only need to file a non-resident return in the state where you work.

Confused About Multi-State Filing? Get Help!

Multi-state tax issues can sometimes lead to unfiled returns, unexpected tax bills, or IRS collection notices. If you’re dealing with unfiled state returns, tax debt, or collection notices related to multi-state income, Tax Defense Network may be able to help. Call 855-476-6920 for your free consultation today!