Well, it depends. Here’s what matters:
- Where do you actually live?
- Where did you earn the income?
Do You Need to File a State Tax Return? Let’s Break It Down.
State taxes can feel like a puzzle, especially if you work in one state but live in another, or if you moved during the year. So, do you actually need to file a state tax return? Well, it depends on a few things.
First, What Even Is State Income Tax?
Think of it as the state version of your federal taxes. Instead of going to the federal government, this money helps fund local stuff—roads, schools, public services, and so on. Not all states have income tax, though (more on that later). And while federal taxes follow one set of rules, state taxes? They’re all over the place, with different rates and filing rules.
When Do You Have to File State Taxes?
If you meet any of these conditions, you probably need to file a state return:
- You live in a state that has income tax.
- You earned income in a state with income tax, even if you don’t live there.
- You moved to a different state during the year.
- You had state taxes withheld from your paycheck and want a refund.
- You qualify for a state tax credit (some credits give you a refund even if you don’t owe taxes).
Most states require you to file a state return if you file a federal return. And if you overpaid state taxes, the only way to get that money back is to file.
Working in One State, Living in Another—What Happens?
Do you have to file taxes in both states? Maybe. Some states have reciprocal agreements, meaning if you work in one and live in another, you only pay taxes to your home state. But not all states do this. If yours don’t play nice with each other, you might need to file in both states—but don’t worry, most states offer tax credits so you’re not taxed twice on the same money.
The “Convenience of the Employer” Rule (AKA, the Annoying Rule)
Some states don’t care that you live elsewhere. If your employer is in one of these states and you work remotely, they might still tax you if your remote work is for your convenience rather than because the employer needs you to work remotely.
States with this rule:
- Connecticut
- Delaware
- Nebraska
- New York
- Pennsylvania
- New Jersey
- Alabama
- Oregon
So, if you live in, say, Indiana but work for a company in New York, you might still owe New York taxes—fun, right?
What If Your Employer Withheld Taxes for the Wrong State?
This happens more than you’d think. Maybe your payroll department didn’t know about a reciprocal agreement, or they just messed up. If the wrong state took taxes out of your paycheck, you’ll need to file a nonresident return to get that money back. Then, file correctly in the right state and ask your employer to fix it for next year. Your employer might ask you to fill out a nonresident tax form for the state you don’t want state taxes withheld. Fill it out and ensure only your resident state is withholding your state tax.
What If You Moved During the Year?
If you packed up and moved to a different state partway through the year, you’re usually considered a part-year resident in both states. That means you might have to file in both places, but only for the income you earned while living there.
If Your State and Work State Have a Reciprocal Agreement
Some states have a deal where if you live in one state but work in another, you only pay income tax to your home state. That means no need to file a nonresident return. Nice and simple.
What About Remote Work?
If you’re working remotely for a company in another state, most of the time, you’ll just pay taxes to your home state. But—and here’s where it gets tricky—some states have different rules. Always check your state’s tax guidelines to be sure.
When Do You Have to File a Nonresident Return Under This Rule?
- If you live in a state with no income tax, you’ll owe income tax to the state where your employer is based.
- If you live in a state that does have income tax, you’ll likely need to file both a nonresident return for the employer’s state and a resident return for your home state.
- The good news? Your home state usually gives you a tax credit for what you paid to the other state, so you don’t get double-taxed.
What If Your Employer Withheld Taxes for the Wrong State?
Mistakes happen. Sometimes, payroll withholds taxes for the wrong state—maybe because they forgot about a reciprocal agreement, you work remotely, or they just goofed. If that happens, you’ll need to file a nonresident return to get a refund for the tax that was taken out incorrectly.
To fix this:
- File a nonresident return for the nonresident state. That way, you can get your refund.
- Tell your payroll department to update your state withholding, so you’re paying taxes to the right state moving forward.
- Heads up: If you were supposed to be paying tax to another state all year and didn’t, you might owe penalties for underpayment.
Examples to Make This Clearer
Example 1: Working in a Different State without reciprocity. Damon lives in Alabama but drives to Mississippi for work. Since Mississippi is where he earns his money, he’ll need to file:
- A nonresident return for Mississippi (because he works there)
- A resident return for Alabama
Example 2: Working in a Different State with reciprocity. Charlie lives in Oregon and works in Arizona. He’s in luck—Oregon and Arizona have a reciprocal agreement. If he had given his employer the right exemption form, they would’ve only withheld Oregon taxes, and he’d only filed an Oregon return. If he didn’t submit that form, though, his employer might have withheld Arizona tax by mistake, meaning he’d have to file an Arizona return just to get that money back.
Example 2: Remote Work Without the Convenience Rule. Damon lives and works remotely in Indiana for an Illinois company. Since Illinois doesn’t apply the convenience of the employer rule, he only files an Indiana resident return—easy!
Example 3: Remote Work With the Convenience Rule. Damon lives and works remotely in California, but his employer is in Connecticut. Connecticut has the convenience of the employer rule, so Charlie has to file:
- A nonresident return for Connecticut (because Connecticut taxes his income)
- A resident return for California (but he should get a credit for what he paid to Connecticut)
What About States with No Income Tax?
Good news! If you live in one of these states, no state income tax for you:
- Alaska
- Florida
- Nevada
- New Hampshire (no tax on wages, but they tax investment income)
- South Dakota
- Tennessee (same deal as New Hampshire)
- Texas
- Washington (no income tax, but they do tax some investment gains. You might also want to file state tax here to get working families tax credit)
- Wyoming
If you live in these states but work in a state with income tax, though, you might still need to file as a nonresident in the state where you earned that money.
List of States with Reciprocal Tax Agreements
The table below lists the state(s) that a particular state has a reciprocal tax agreement with.
If you work in a state with a reciprocity agreement, you can fill out an exemption form and hand it to your employer so they don’t take out taxes for that state. But don’t stop there—make sure your employer is actually withholding taxes for your home state instead. If they’re not, you could end up owing a chunk of money (plus penalties) when tax season rolls around.
| If you’re a resident of… | and you work in… | Fill out and submit this exemption form to your employer |
| California, Indiana, Oregon, or Virginia | Arizona | WEC |
| Anywhere other than District of Columbia | District of Columbia | D-4A |
| Iowa, Kentucky, Michigan, or Wisconsin | Illinois | IL-W-5-NR |
| Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin | Indiana | WH-47 |
| Illinois | Iowa | 44-016 |
| Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin | Kentucky | 42A809 |
| District of Columbia, Pennsylvania, Virginia, or West Virginia | Maryland | MW 507 |
| Illinois, Indiana, Kentucky, Minnesota, Ohio, or Wisconsin | Michigan | MI-W4 |
| Michigan or North Dakota | Minnesota | MWR |
| North Dakota | Montana | MW-4 |
| Pennsylvania | New Jersey | NJ-165 |
| Minnesota or Montana | North Dakota | NDW-R |
| Indiana, Kentucky, Michigan, Pennsylvania, or West Virginia | Ohio | IT-4NR |
| Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia | Pennsylvania | REV-419 |
| District of Columbia, Kentucky, Maryland, Pennsylvania, or West Virginia | Virginia | VA-4 |
| Kentucky, Maryland, Ohio, Pennsylvania, or Virginia | West Virginia | WV/IT-104 NR |
| Illinois, Indiana, Kentucky, or Michigan | Wisconsin | W-220 |
Bottom Line
If you live and work in the same state that has income tax, filing is pretty straightforward. But if you moved, worked remotely, or worked across state lines, things get a little trickier. If you work for an out-of-state employer, your tax situation depends on where you live, where the money is technically earned, and whether the states involved have special rules. If you’re ever unsure, check your state’s tax site—or talk to us to avoid surprises at tax time. Make sure you’re filing where you need to—and not paying more than you should.