For some, the process of filing income taxes can be a complicated one; however, it can become even more complicated for those who need to file returns for more than one state.
This is where Maryland CPA John Curtin sees the most confusion among his clients.
The rules for paying income taxes as a non-resident or partial-year resident vary widely from state to state, Curtin says.
Legislators have tried before to clear up this confusion. The Mobile Workforce State Income Tax Simplification Act of 2013, or HR 1129, was proposed to help standardize the rules for paying taxes on income earned in other states, but the bill was not enacted.
Even with the varied rules for multi-state filing, all of these regulations are available online and are easily accessible, Curtin says.
Here are a few common situations where you may need to file your income taxes in more than one state.
You commute across state lines for work
If you live in one state but work in another, you may have to file a tax return in both states.
“Depending on what state you live in and where your income is from you’ll have to look at what agreements may exist between states,” Curtin says.
For example, Maryland, Virginia, and Washington, D.C., have an agreement where someone who lives in one state but works in another only pays income taxes in the state where they live.
In other states, you may have to file taxes both in your home state and the state where you work, but your home state will give you a credit for the taxes you pay where you work.
You are a part-year resident of different states
If you moved between states, your income and deductions will be divided based on the time you spent in each state, Curtin says.
College students who go to an out-of-state school and work during the school year and summer in different states may not have to pay income taxes in both states, depending on how much they earned.
If a person earned less than $6,400 total—the amount of the federal standard deduction—they don’t need to pay federal taxes on that money, states Curtain. They may be exempt from paying state taxes as well, but states set their own minimum filing requirements, so you should check the rules for the states in which you worked.
You took a business trip
Some states require you to pay income taxes for any work you do in that state, while others set a threshold and your income won’t be taxed unless you work there for a certain number of days of the year.
In New York, for example, you’d owe income taxes the minute you started work in that state. So, if you traveled there for a three-day business trip, you would owe income taxes on the money you earned in those three days.
More states are adopting New York’s model for non-residents paying income taxes, which has been in place for decades, as they look for additional revenue sources.
You do business remotely in another state
Many states can also tax money you earned in that state even if you didn’t set foot there, Curtin says. This is common for people who run a home-based business and do business with people in other states over the internet or telephone.
“We see this a lot, particularly people like computer programmers who sit in their home and do it all over the phone,” he says.
You can also owe taxes in other states if you earned money through an investment in a business or received income on a rental property.
If you’re unsure about whether you owe taxes in a particular state, Curtin recommends checking with that state’s department of revenue or consulting with a financial professional
All states have tax instructions online, states Curtain.
“If you pull up that state’s instructions and look at non-resident information, in every book it will tell you whether you need to file or not,” he says.