How do I File a Nonresident State Tax Return?

• The state where you lived (your resident state) taxes all income called personal service income. 
• Each state where you worked but did not live (your nonresident state) may require you to file a nonresident state return.
  • Unless your nonresident state happened 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 are not double-taxed.  The state tax credit is a dollar-for-dollar reduction to the state taxes owed.

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:

1. Prepare your federal tax return first following our step-by-step instructions below.  Data input in your federal return will transfer to your state return(s) and will let TurboTax know that you need to file more than one state return.
2. Prepare a return for the nonresident state before your resident state. You will only report the income and withholdings from that state.
3. Prepare a return for your resident state. You will report all of your income (including income from the nonresident state).
4. 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.

Note:  TurboTax will calculate the credit for you, but you have to 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.

If you live and work in reciprocal states, you may only need to complete Step 3.

If you moved to a new state during the year, you will normally file part-year returns in your old state as well as your new state.

Many states have a form specifically for part-year returns (often designated by the letters PY), whereas other states use the same form as residents and/or nonresidents. TurboTax will generate the correct form for your particular situation.

Important: Don't confuse part-year returns with nonresident returns. Part-year returns are for taxpayers who actually lived in that state, whereas nonresident returns are for taxpayers who earned money in that state while living in a different state.

 

Example:

• Joe lived and worked in New York for years. Last summer, he found a better job in Pennsylvania, and in September he moved there to work for his new employer. This year, he will file part-year returns for both New York and Pennsylvania. In subsequent years, he will only need to file a Pennsylvania return.
• Mary lives in New York and commutes to her job in Pennsylvania. Every year she files a resident return for New York plus a nonresident return for Pennsylvania.

First, make sure TurboTax knows that you need to file one or more nonresident state returns:

1. Open your federal tax return.
2. Click the Personal Info tab, then click Continue until you reach the screen Your Personal Info.
3. Scroll down to the Your Other State Info section and click Edit.
4. Select the appropriate answer on the Did You Live In Another State in 2011? screen (most people will answer "No"). Click Continue.
5. Answer Yes on the next screen Did You Make Money In Any Other States?
6. 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.
7. 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.

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.

 If you want to prepare returns in four or more states using TurboTax, you'll need to switch to the Desktop version.

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.

Tip: If you are preparing a nonresident state return solely to recover tax that was withheld in error, enter 0 on the screen that asks for the income earned in that state. This will eliminate your tax liability for that state, resulting in a full refund.

A reciprocal agreement allows residents of one state to request exemption from withholding for wages earned in a reciprocal state. This simplifies tax preparation because the employee only needs to file one state tax return instead of two.

To illustrate, let's say you live in State A but work across the river in State B, a non-reciprocal state. Your employer would withhold taxes for State B, and every year you would have to file a nonresident return for State B in addition to your normal resident return for State A.

However, if State A and State B were reciprocal states, you could request exemption from State B tax withholding by filling out State B's exemption form and giving it to your employer. Then you would only have to file a return in State A, your resident state. Not only do you save time and hassle, you save the cost of a second TurboTax State product!

State Exemption Forms

The chart below shows the current list of reciprocal states and a link to each state's exemption form. States not listed below do not have reciprocal agreements.

Important: If you request your employer to stop withholding taxes for the state you work in, ask if they can withhold taxes for your resident state instead. Some employers can do this, but if yours cannot, you should make quarterly estimated tax payments to your resident state to avoid possible underpayment penalties and interest.

 

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.

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.

Tip: If you find yourself in a similar situation, let your employer know right away that taxes are being withheld incorrectly. You might even ask them to reimburse you for the additional cost of filing a nonresident return, as well as any underpayment penalties you may incur as a result of non-withholding of taxes for your resident state.

 

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 "taxable" states, 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.

Military designate home of record as state where they enlisted.  Military personnel considered residents of military home of record.  Federal law prohibits other states from taxing wages of non-resident military members stationed in their state.

Federal law prohibits other states from taxing wages of nonresident military members stationed in their state; therefore, you are only taxed by your resident state. 

Military personnel are considered residents of the military home of record and the military designates your home of record as the state where you enlisted. 

For example, you enlisted in New York, but ended up being stationed in Oceanside, CA where you received income from the military.  You would only file a New York state return since that is your home of record.