How To File Taxes If You Lived In Two States
If you live and work in the same state, you do not have to trouble yourself with multiple tax returns since the process is fairly straightforward. You just owe a single state a fair share of your income.
However, some people are required by the law to file multiple tax returns for different reasons and circumstances. These include situations where you live in two states, working across state lines, working for an out-of-state employer, or having a spouse whose job is in a different state. If you’re in one of these circumstances, this article is for you.
Here’s everything you need to know about filing taxes if you lived in multiple states.
Factors Affecting The Tax Filing Procedure
Several factors may affect the tax filing process for people who lived in two different states. These are outlined as follows:
- the specific states involved
- in which state is your primary source of income
- if you kept the same job or you changed jobs
- if there is a presence of reciprocity agreement between the two states involved
Generally, you need to file two part-year state tax returns. While that is often the case, there is a possibility that one of the states involved may require you to do a report of your entire income on their returns. Hence, you must review the factors mentioned above to ensure that you do the process correctly and avoid any other inconveniences.
Tax Filing Process If You Lived In Two States
You need to file part-year state returns if you lived in two different states. It is usually applicable in states where you have earned income from self-employment or wage and have an asset or property that produces income.
Form To Use
If your situation satisfies the need for two part-year returns, the next thing you should do is choose the form that best fits your current circumstances. Some states use a different form for residents who have been in the area for less than a year, while some use the same form given to full residents.
In the bargain, some states consider an individual a full resident if they have been living there for about 183 days. Hence, you should first check the residency rules of each state involved before filing any taxes. You may do so by visiting your state tax authority’s website. No one wants to be rejected or denied in the middle of the process. Thus, form verification is essential.
Income Division Between States
In case you are not aware, part-year tax returns generally come from your total income from both locations involved. From there, your tax liabilities are distributed based on how much you make from each state. The income division is quite easy if you move to a new state to begin a job there since you would receive a W-2 form from your employers.
However, it can be tedious if you choose to keep your job when you move to another state since you will only be given a single W-2 form. In that case, you will also need to divide the income between two states by yourself since the form will only show the total amount of money that the company paid you. You have two options. You can do either of the following:
- Split the income based on the duration of your residency in each state: If your income is relatively the same as every month, you can base the income allocation on the number of weeks you have been in each state. For instance, you worked for ten months of the year. After you moved, you started a new job in May. You can use the 5/10 fraction to determine how much income you should allocate to your new state. The rest of your income would then go to your old state.
- Utilize available payroll information: Employers generally provide payroll information to their employees. You can use this paystub to do income allocation. It is a more accurate option than splitting your income based on how long you lived in each state. It is also more applicable if your income fluctuates. You can ask your employer for other records that might help you evaluate how much income you earn in your first state. These include timesheets.
Can I Use TurboTax If I Lived In Two States?
Yes, you can use the TurboTax e-file software to file taxes in two different states. However, a warning – it’s not very easy.
Even if you know what you’re doing (and most of us don’t know) – TurboTax quickly becomes very complicated for multi-state filings. It gets even more complex in this situation, if you want to start making any deductions.
This is a quick path to an audit, especially as states become more aggressive at pursuing anyone who (they believe) has not actually moved their primary place of residence. You want to do everything you can, to avoid a federal IRS audit (or even a state audit).
If you have any type of tax situation where you are doing anything other than simply taking home a regular paycheck from a normal employer – we always recommend hiring a qualified tax professional. Not only does this make sure you avoid any costly tax errors – it also gets you the largest tax deductions possible.
This means more money in your pocket, and less trouble with the IRS. Even if you work a normal office job and your employer withholds the proper amount of taxes during each pay period – we still recommend going with a qualified tax professional.
They will simply know more than you do, be able to confidently answer any questions you might have, and get more money back. This is far better than the headache (and potential costliness) of trying to handle all of your taxes yourself.
Can I Be A Part Year Resident In Two States?
Yes. For example, if you spent six months in one state, and six months in another – you would likely be considered a part year resident in each state.
If you are simply working in New Jersey, but you live in Pennsylvania – this would be different. You’d be considered a nonresident in New Jersey, with all of your taxes being most relevant to Pennsylvania.
Tricky situations like these are exactly why we recommend utilizing a tax professional for all of your income tax needs. These professionals have spent their lives understanding and decoding tax law, so they will know far more than you will.
Can I Be Taxed In Two States?
Yes, you can be. However, in some situations (but not all) states may have a reciprocal tax agreement, which means you may not have to file two different state tax returns.
If you have any sort of income coming in from another state outside of your primary residence, you should file a tax return in both states. This
Which States Have No State Tax?
There are seven state which have no state income tax. Additionally, two more (Tennessee and New Hampshire) do not tax your income either – but they do have tax on investment earnings.
- South Dakota
What Determines Your State Of Residence For Tax Purposes?
This one can be a bit complicated. Usually, states will determine if you were actually present in the state for 183 days (or longer) during the tax year.
This is half of the year, which means that more often than not, you are in that state. A party-year resident will be treated differently, in almost every case.
However, there are other confounding variables. Did you commute to work? If so, was this work location in a different state.
Did you work from your primary state, but was it remotely? Thus, was the work address technically in a different state?
The IRS can quickly make things more complex, and your state tax return for your primary resident may only be the tip of the iceberg. You likely will have to file a state tax return in another state as well – which is one of the many reasons we recommend working with a qualified tax professional.
Is State Income Tax Based On Residency?
Yes. For example, if you live in California – but you made some money through an investment property in South Carolina – all of your income needs to be reported in California.
Additionally, you will need to file a state income tax return with South Carolina, in all likelihood. While each state differ, it is always better to be safe than sorry, when it comes to filing taxes.
Of course, things get complicated if you have multiple states involved. For example, there are reciprocal tax agreements between states, which remove the multi-state filing requirements (at least in some cases).
This is why we always recommend opting to utilize a qualified tax professional. They will have a lifetime of experience in dealing with the IRS, as well as with individual states.
What Is The 183 Day Rule For Residency?
The 183 day rule is fairly straightforward. This rule simply means that if you spend 183 days (or more) living in one location, that this location would be considered your primary residence.
For example, if I lived in California for 190 days of the year, my primary residence would be in the state of California. This rule can get complicated if you move frequently, own multiple properties (all in different states), have investments in different states – or even if you simply move.
However, this rule is usually the best way to determine where you live – at least as a starting place. A qualified tax professional will be better able to assist you with any issues beyond this, so we recommend always using one, when it comes to filing income taxes of any kind.
How Do I Change My State Residency?
Changing your state residency is a little bit complex, but you should know that states will actively challenge tax claims regarding residency, that they believe may be false. This can be a problem if you really have moved, but your state believes you haven’t.
To start with, to change your state residency, you actually have to move. Next, you need to cancel your old driver’s license, and get a new one.
This license should be from the state you are moving to. For example, if you are moving to California from Florida, your Florida driver’s license must be cancelled and the new license should be from California.
You will need to do the same thing for your car’s registration. You should also notify your insurance company of the change.
Next, you can change your voter registration information, as you’ll be voting in the new state you are moving to. One of the biggest factors in changing your residency, is selling your old house.
This means that you should also buy a new house in your new state. While this may not always be possible, you’re going to need someplace to live, so at least make sure you sign a lease for a new location.
To go the extra mile, you should also switch all of your bank accounts to your new state. Beyond this, you can continue to make changes that indicate your new place of residence.
This means changing all of your relevant documents to your new address. This can be trust documents, wills, power of attorney documents, homestead exemptions, and even more.
You should also change your address with the IRS – though this may seem obvious as a first step. Even small steps should be followed though, just to be extra cautious.
This includes moving all safe deposit boxes to your new states, moving your medical records (and finding new doctors), and even getting a new library card. You should also let credit card companies know, as they otherwise may falsely flag spending activity in your new state as fraudulent.
How Do You Prove You Live In Your Primary Residence?
You would think that proving you live somewhere would be fairly easy. After all, you can only be in one place at one time.
However, proving residency to the IRS (or to your old state) can actually be much trickier. You should have pay stubs from the job in your new state, which is usually the most commonly used way to prove a new place of residence.
Beyond this, switching over all of your documents provides you with a very lengthy evidence trail – which is part of why we recommend being very thorough with switching over all of your financial and personal documents to your new place of residence.
How Do You Calculate Residency Days?
Surprisingly, you may have to work hard to prove your new place of residency, and accurately count your days there (to make sure you are really spending more than half of the year in this location).
This is because your former state can actually make quite a bit of money from individuals who may have moved – but can’t prove that they are now living primarily in a different state. The safest bet is to be able to prove you are living somewhere else for 183 (or more) days per year.
Since you are unlikely to remember to calculate this every day, going by your pay stubs is a fairly accurate way to get an exact amount. For example, if you move to Seattle and you work there as well, the pay stubs from your job should show exactly how many days you were actually in Seattle.
New York and California in particular collect lots of money from residents who may have moved – but cannot reasonably prove that they no longer live in either of these states. Your best bet to avoid paying extra taxes in a situation like this, is to keep a detailed paper trail – showing all of your financial and residency documents which prove your new state of residence.
Other Factors To Consider
As you might already know, both earned and unearned income is considered in your tax liabilities. Generally, taxpayers have to allocate their unearned income (that includes interest, Social Security benefits, dividends, and capital gains) to the state they were living in at the time they receive it.
However, if allocating it in a single state is deemed unclear, you can also repeat the process of splitting it based on residency.
If you have earned and unearned income, you need to calculate the unearned income you receive during your residency in one of the states. After which, you should add it to the existing earned income allocated for that same state.
Just make sure to do it in the other state as well if the residency permits so.
Each tax year, millions of Americans file taxes for two different states. However, it’s important to note your resident state, as this will make a big difference with the IRS.
This is your home state, and as such, you may qualify for an exemption (or two). While your federal tax return won’t vary much, whether you’re living in Nevada, Maryland, Texas, New Jersey, Pennsylvania, or Illinois – your state taxes certainly will.
There are even some states (like Florida) – which have no state income taxes whatsoever. Your taxable income is likely going to be looked at in aggregate, whether it’s reviewed by a federal agency or a state agency.
So make sure you are always reporting accurately, across all tax forms. We also always recommend having a qualified tax professional do all of your yearly tax preparation.
They will know about loopholes (and other legal areas) – which can help save you money. It’s important to find someone in your primary state as well, since you may get different tax breaks (or tax credit) in Alaska, then you would if you were living in Colorado.
Here are some states which have unusual differences in tax laws and exemptions, for example.
- New Hampshire
- North Carolina
- South Dakota
- South Carolina
- District Of Columbia (Washington, DC)
The Bottom Line On Filing Taxes While Living In Two States
Filing taxes in two different locations can be troublesome, especially if you have no idea which forms to fill out and how you can prorate your income. Hence, you should first thoroughly evaluate your current circumstances and their impact on your tax liabilities. Once you are done, it will be easier for you to know which direction to follow.
However, assessing your entire situation is just half of it. You also have to be acquainted with the residency rules in all states involved. Accordingly, the process will be reasonably straightforward. You only have to file two part-year tax returns if you are a permanent resident in two locations.
In case you still have difficulty accomplishing your tax liabilities, you can also ask for assistance from tax professionals. A consultation from a professional tax expert can help you not only in the tax filing process but also in other tax-related issues such as tax assurance and tax resolution.
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