- How do I File a Nonresident State Tax Return?
How do I File a Nonresident State Tax Return?
Simply put, a nonresident state tax return is a tax return for a state other than your resident state. You'll need to file a nonresident state return if:
- You earned wages or income while working in a state that you are not a resident of;
- You received rental income from property located in a state that you are not a resident of;
- Your employer accidentally withheld state tax for the wrong state (in this case, filing a nonresident return enables you to recover the erroneous withholdings).
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.
- The Basics
- What if I moved to another state during the year?
- How do I create a nonresident state return in TurboTax?
- What is a reciprocal state and how does that work?
- Myth: I don't have to file a return in a reciprocal state
- Myth: I need to pay tax to the state my employer is based in
- Myth: I live or work in an income-tax-free state, therefore I owe no tax
Most nonresident state filing situations boil down to these three steps:
- Prepare a return for the nonresident state. You will only report the income and withholdings relevant to that state.
- Prepare a return for your resident state. You will report all of your income, regardless of where you earned it.
- 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.
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. Click here for step-by-step instructions in TurboTax.
However, if you live and work in reciprocal states, you may only need to complete Step 2. More information about reciprocal states.
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.
For more information about part-year returns, see How do I File a Part-Year Resident State Tax Return?
First, make sure TurboTax knows that you need to file one or more nonresident state returns:
- Click the Personal Info tab, then scroll down to the Your Other State Info section and click Edit.
- Select the appropriate option on the screen Did You Live In Another State in 2009? (Most people will select the second option, "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 1, and when you scroll down you will see your nonresident state(s) listed next to the line "Received Income From."
TurboTax Online: When you get to the State Taxes tab, the program will show you the states you need (up to three), 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. 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!
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.
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Working in a reciprocal state doesn't 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.
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:
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* 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.
