- Filing State Returns in Separate States
Filing State Returns When You Live and Work in Separate States
If you live in one state and work in another, you'll need to file a state return in both states unless the two states have a reciprocal agreement (also know as state reciprocity).
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A reciprocal agreement between states means that there are rules agreed upon between the states that help people who live in one state and work in the other to more easily file their state income taxes.
Under a reciprocal agreement, a taxpayer is only subjected to the income tax for his or her resident state (the state in which the taxpayer lives). Reciprocal state agreements typically contain clauses that exempt the taxpayer from withholding taxes for the nonresident state.
In some cases, the agreement even allows the employer in the nonresident state to withhold state tax for the employee's resident state. (An example is Pennsylvania's Form REV-420, which authorizes a Pennsylvania employer to withhold taxes for reciprocal states Indiana, Maryland, Ohio, New Jersey, Virginia, or West Virginia.)
In situations when states do not have reciprocal agreements and you live in one state and work in the other, you must file a state return and pay taxes in both states; however, a credit is taken on the resident state return for taxes you paid to the nonresident state.
Ideally, if two states have a reciprocal agreement, there's no need to file a nonresident return in the state where you work. You only need to file one state return, in the state where you live. In this ideal case, you simply declare your nonresident wages on your resident return.
That's the ideal scenario, but not all states have reciprocal rules so simply defined. For example, in some states you must request your nonresident employer to withhold taxes for your resident state in order to avoid filing returns in both states.
Here are the states that have reciprocal agreements (current as of March 2006):
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If your resident and employer states do not have a reciprocal agreement, then you must file two state returns, pay in both states, and declare a credit for the nonresident state taxes paid.
If your resident and employer (nonresident) states have a reciprocal agreement, then contact your state tax authority to find out details regarding the rules for that agreement. You should also print the associated Exemption Form in the chart above for the employer state and follow the instructions for completing and filing the form (usually it is filed with your employer).
To contact your state tax authority, see 2007 State Information and select the link to your state. Scroll forward through the document to find the Contact Information section.
