The Tax Rules for Working in Another State
- States that assess an income tax typically require residents to pay this tax although definitions of residents vary from state to state. Generally, you are classified as a resident of a particular state if you keep your primary home in that state. However, in states such as Minnesota you are regarded as a resident if you live in the state for at least 183 days during a particular year even if you actually have a primary residence in another state. In North Dakota, you are classified as a resident if you spend 210 days in the state within a single tax year. In other states such as Massachusetts, you may have to pay taxes if you live in the the state for a portion of the tax year.
- If you do not qualify as a resident or part-year resident of a particular state you may still have to pay taxes to that state based upon the income that you earned from sources within that state. In states such as Minnesota and Massachusetts, you only have to pay income tax as a non-resident if the income you receive from sources in the state exceeds certain levels. Therefore, if you have your primary residence in Massachusetts but work for several months in Minnesota, you have to pay income tax on your earnings in both states.
- In most instances you have to pay income tax in the state where you keep your primary residence rather than in the state where you work. People who commute out of state often pay this tax indirectly because taxes are withheld from their wages in the state where they work and then they get a tax credit to offset those taxes from their home state. However, there are some exceptions to this rule, which enable you to avoid paying income taxes in your "home" state. If you have a primary residence in Oregon but you spend less than 31 days in the state during the tax year, you maintain a permanent home in another state and do not use your Oregon home during the tax year, then you are regarded as a non-resident. Therefore, you pay no Oregon taxes on income earned in other states.
- Certain states have reciprocity agreements which prevent workers from having to pay income tax on the same money to more than one state. Where such an agreement exists, you typically have to pay taxes to your home state rather than another state from which you derived some of your income. As of 2011, Illinois, Indiana, Kentucky, Ohio, Wisconsin and Minnesota all have reciprocal agreements with Michigan. However, other states such as Oregon and California have no such agreement with Michigan, which means workers from these states may end up paying more in taxes than workers from North Dakota or Minnesota.
- Some states such as Florida have no income tax, which means residents only have to contend with federal taxes while out of state workers may have to contend with taxes in their home state and federal taxation.
If you are in the military you generally have to pay taxes based upon where you keep your primary residence rather than where you work. However, if you have income sources other than your military pay then you may have to pay taxes on those additional earnings to your home state and to the state where you are stationed.
