Key Takeaways
- Part-year residents typically pay tax on all income received while residing in the state.
- Nonresidents generally pay tax on income from work in the state. They also pay tax on income from other sources in the state.
- To calculate the tax owed in each state, you can use an apportionment schedule. It assigns the right share of your income and deductions to each state.
- You may have to file more than one state income tax return if you have income from, or business interests in, more than one state.
How do I know how much tax I owe in each state?
In most states, residents pay tax on the income (from all sources) they received during the calendar year. Residents typically get a tax credit for taxes paid to any other state.
Example: A California resident receives $20,000 from a rental building in Arkansas. The resident reports only the $20,000 to Arkansas and pays $2,000 in tax to Arkansas. The person is a California resident, so California taxes the $20,000. But, it gives a $2,000 tax credit for the tax you paid to Arkansas.
Part-year residents follow each state's rules. Some states separate the income and tax only their state's income. Or, a state may tax all of the income as if you were a resident. Then, it allocates the tax based on in-state sources as a percentage of all sources.
Figuring the apportionment percentage
You may need to complete an apportionment schedule if you have income in more than one state. This applies to part-year residents and nonresidents working in a state. This form can usually be found in the state's part-year or nonresident income tax return. You use the schedule to "apportion" how much of your income is taxable in each state.
- Part-year residents pay tax on income earned in the state. They also pay tax on all other income while living in the state.
- Nonresidents usually pay tax on income they earned from work in the state. They also pay tax on income from other sources in the state.
After you use the allocation schedule to divide your income and deductions between the states, you need to find what percentage of your total income is state income. We'll call this the "apportionment percentage," and it is used in the rest of the calculations.
If you earned $30,000 in a new state out of $50,000 total income, your apportionment percentage is 60%. This is calculated by dividing $30,000 by $50,000.
You generally use the apportionment percentage in one of two common methods to calculate your state income tax.
Method 1
Some states require you to calculate your tax as if you were a resident in the state for the entire year. In other words, you calculate your state's taxable income as if you were a full-year resident. Then, you calculate a full year's state tax on this income. You then apply the apportionment percentage to this tax to determine the tax you owe in this state.
Method 2
Other states require you to prorate your itemized deductions and personal exemptions. You also prorate some other allowed deductions and credits using your apportionment percentage. This makes the taxes you pay to the new state based on this prorated amount.
TurboTax Tip:
In some states, you calculate your tax as if you were a resident the whole year and then pay a portion of the total tax. Other states require you to prorate your itemized deductions, personal exemptions, and certain other allowable deductions and credits using your apportionment percentage.
What do I do if I'm a nonresident in another state?
As a nonresident, you typically have to use an apportionment schedule to find how much tax you owe in each state. But, the twist is that you also pay tax on all your income for the year to your resident state. Why do the apportionment schedule, then? Because you pay taxes on what you earned in the temporary state in addition to what you pay to your resident state.
Does this sound like double taxation? It is. But, most states usually allow a credit on your home-state tax return for the taxes you paid to the other (nonresident) state. This usually means you won't pay more tax than if you didn't have to file the temporary state's return. You may pay more total taxes if your nonresident state has higher rates than your home state. This can happen because your home state may not offer a full credit for taxes paid elsewhere.
Also, if you have enough deductions to greatly cut your resident state taxes, but none for your temporary state, you might have to pay more. If so, you won't have enough resident state taxes to use the full credit from the nonresident state. You typically can't carry over the extra nonresident taxes to use as a credit in a later year.
When should I file more than one state income tax return?
You may have to file more than one state income tax return if you have taxable income from, or business interests in, other states. Here are some examples:
- You are an S corporation shareholder. The corporation does most of its business in a state other than where you live.
- You're a partner in an out-of-state partnership.
- You own rental property in another state.
- You're the beneficiary of a trust or estate that has interests in another state.
Fortunately, in most cases your resident state allows you to take a credit for the taxes you have to pay to the other state, as in a temporary residence situation. Check your state tax website. It has info on if your state offers this credit. TurboTax can also help you figure out the credit.
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