How do I File a Nonresident State Tax Return?
What is a nonresident state tax return? Do I need to file one?
Simply put, a nonresident state tax return is a tax return for a state other than your resident state. You'll need to file one if:
- You earned wages or income in a state you're not a resident of;
- You received rental income, gambling winnings, or sold a home for a profit in a state you're not a resident of;
- You are a shareholder of an S Corp and the business is in another state;
- You are a partner in an out-of-state partnership;
- You are a beneficiary of a trust or estate that has interest in another state;
- Your employer withheld state tax for the wrong state. Under most circumstances, you’ll have to file a nonresident return to recover the incorrectly-withheld taxes. (And notify your employer right away so it doesn't happen next year!)
Like many folks, you may be confused about the proper procedure for filing multiple state tax returns. You might even worry about filing your state taxes incorrectly. Relax. TurboTax can easily handle nonresident state returns.
If your state taxes individual income, also called personal services income:
- The state where you lived (your resident state) taxes all of your income.
- Each state where you worked but did not live (your nonresident state) may require you to file nonresident state return.
(Unless your nonresident state happens to be Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, which do not tax earned income.)
- Your resident state will credit for taxes paid to the nonresident state or states on the resident state return so you should not double-taxed. The state tax credit should be a dollar-for-dollar reduction.
Note: California residents cannot claim the nonresident state tax credit if the income tax is related to tax paid in District of Columbia (unless dual residence), Guam, Indiana, Oregon, or Virginia (unless dual residence).
Most nonresident state filing situations boil down to these steps:
- Prepare your federal tax return first following our step-by-step instructions below.
o Data input in your federal return will transfer to your state return(s) and
o Will let TurboTax know that you need to file more than one state return.
- Prepare a return for the nonresident state before your resident state. You will only report the income and withholdings from that state.
- Prepare a return for your resident state. You will report all of your income (including income from the nonresident state).
- Take a credit for taxes paid to the nonresident state on your resident state return so that you won't get double-taxed on the same income.
If you live and work in a reciprocal state, you may only need to complete Step 3.
Important: TurboTax will calculate the credit for you, but you must select the state(s) long form(s) to get the option, even if TurboTax chooses the short form(s) for you.
For example, if you live in Kansas but work in neighboring Missouri, you would file a nonresident Missouri return in addition to your usual Kansas return. You'd then take a credit for any taxes you paid to Missouri on your Kansas return.
How do I add a nonresident state return in TurboTax?
our federal tax return is underway or done, but now you need to add another state. First, make sure TurboTax knows that you need to file one or more nonresident state returns:
- Open your federal tax return.
- Click on Personal Info, then click Continue until you reach the screen Your Personal Info.
- Scroll down to the Your Other State Info section and click Edit.
- Select the appropriate answer on the Did You Live In Another State in 2012? screen (most people will answer "No"). Click Continue.
- Answer Yes on the next screen Did You Make Money In Any Other States?
- On the next screen, select any additional states (other than your resident state or states) where you received income and/or states that your employer accidentally withheld taxes for.
- Click Continue. You will return to the same screen you saw in Step 2, and when you scroll down you will see your nonresident state(s) listed next to the line "Received Income From."
Note: When you enter your state information (wages, income, state tax withholding) in the wages and income sections of the federal return make sure that you enter your nonresident state code(s) of the state(s) that withheld state income taxes.
TurboTax Online: When you get to the State Taxes tab, the program will show you the states you need (up to five) based on what you entered in the Personal Info section.
Important: Make sure you prepare all nonresident returns before your resident state return, to ensure proper calculations. Also, make sure you select the state long form(s) even if TurboTax selects the short form(s) for you.
TurboTax Desktop: You can purchase as many additional state products as you need. The simplest way is by choosing Download State from TurboTax's Online menu. Again, always prepare your nonresident state return(s) before your resident return so that TurboTax calculates the credit properly.
For detailed information about purchasing additional state tax programs, see Multiple State Tax Returns.
Myth: I do not have to file a return in a reciprocal state
Not so fast! Working in a reciprocal state doesn't always guarantee you don't have to file a tax return there. As long as your employer continues to withhold taxes for your "work" state, you'll need to file a tax return in your work state as well as your resident state.
Here are the most common reasons why tax is still being withheld in your state of employment, even though it is a reciprocal state:
- You didn't submit the exemption form to your employer (a few states require that you submit the form annually);
- Your employer decided not to honor your exemption request;
- Your employer's payroll department or vendor made a mistake;
- Are you a Wisconsin resident working in Minnesota, or vice-versa? Their reciprocal agreement ended on January 1, 2010. That means Wisconsin residents working in Minnesota will see MN withholdings on their 2010 W-2 forms, and Minnesota residents working in Wisconsin will see WI withholdings on their W-2s.
Myth: I need to pay tax to the state my employer is based in
True or False? Linda, a full-time Maine resident, is a remote employee who works from home, handling customer service calls for an insurance company located in Ohio. She therefore needs to pay Ohio taxes on her income.
False. What matters is where she earned her income, not where her employer is located. Any income she earns while working in Maine is subject to Maine – not Ohio – income taxes. She should only have to file a Maine tax return.
However, if Linda's employer mistakenly withheld Ohio taxes (perhaps out of habit because most of their employees do work in Ohio) then Linda will also need to file a nonresident Ohio return to recover the erroneous withholdings. She'll declare that she earned no wages on her Ohio return, and TurboTax will calculate a full refund for Ohio taxes withheld.
Myth: I live or work in an income-tax-free state, therefore I owe no tax
That's only true if you live and work in the 9 states that do not tax earned income* – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
However, if you live (or work) in the remaining 41 states and the District of Columbia, at least part of your income will be taxable.
- Residents of the 41 taxable states pay tax on all of their income, regardless of where it was earned.
- Residents of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming who earned money in the remaining 41 taxable states pay tax on the income that was earned in those 41 states.
Refer to this chart:
* Earned income is employment compensation, such as wages, salary, commissions, and tips.
In contrast, unearned income comes from non-employment sources, such as interest, dividends, capital gains, and rental income.
The military designates a service member's home of record as state where they enlisted. Military personnel are considered residents of their military home of record. Federal law prohibits other states from taxing wages of non-resident military members stationed in their state. See Military Spouse Residency Relief Act and State Taxes.