Filing Taxes When You Live in Two States: What You Need to Know

Living in two states during the same tax year can make tax season a bit more complicated, but it doesn’t have to be overwhelming. Whether you moved mid-year or split your time between two homes, understanding how to file taxes in multiple states is crucial to avoid penalties and maximize your tax benefits. This guide will walk you through the key steps, rules, and considerations for filing state taxes when you’ve lived in or earned income in two states.

When Do You Need to File Taxes in Two States?

You’ll typically need to file taxes in two states if:

• You moved from one state to another during the tax year.
• You lived in one state but worked in another.
• You earned income from property, business, or other sources in a different state.

In these cases, you’ll likely file a part-year resident return for each state where you lived and/or earned income. Each state has its own rules for determining residency and taxing income, so it’s important to check the specific requirements.

How Does Filing Work If You Moved During the Year?

If you permanently moved from one state to another:

1. File a Part-Year Resident Return for Each State: Report the income earned while living in each state.
2. Split Your Income Appropriately: Only include income earned during your time as a resident of each state. For example, wages earned before your move go on your first state’s return, while wages after the move go on your new state’s return.
3. Check Residency Rules: Some states consider you a full-year resident if you spent more than 183 days there, even if you moved mid-year.

What If You Lived in One State but Worked in Another?

If you lived in one state and worked in another (or had remote work based in another state):

1. File a Nonresident Return for Your Work State: Report only the income earned there.
2. File a Resident Return for Your Home State: Report all income, including what was earned out of state.
3. Claim a Credit for Taxes Paid: To avoid double taxation, your home state will typically offer a credit for taxes paid to the work state (if no reciprocity agreement exists).

What Are Reciprocity Agreements?

Some neighboring states have agreements that simplify tax filing by allowing residents to pay taxes only where they live, even if they work across the border. For example:

• If you live in New Jersey but work in Pennsylvania, a reciprocity agreement means you only pay taxes to New Jersey.

If such an agreement exists between your states, you can request an exemption from withholding taxes in your work state by submitting the appropriate form to your employer.

Key Steps for Filing Taxes in Two States

1. Determine Residency Status: Identify whether you’re a part-year resident or nonresident for each state based on its laws.
2. Gather Income Records: Break down your income by source and location (e.g., wages, property income).
3. File Nonresident Returns First: Start with the nonresident return (if applicable), as you’ll need this information when filing your resident return.
4. Claim Tax Credits: Use credits for taxes paid to other states to avoid double taxation.

Common Mistakes to Avoid

• Failing to Split Income Correctly: Ensure income is reported only for the time spent living or working in each state.
• Overlooking Tax Credits: Don’t miss out on credits for taxes paid to another state—this prevents paying twice on the same income.
• Ignoring Residency Rules: Some states have strict residency definitions that could impact how much tax you owe.

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