Key Terms for First-Time Filers
- Your domicile is your permanent home, the place you intend to return to.
- A resident generally has their domicile in a state or meets its residency rules.
- A nonresident earns income in a state without living there.
- A part-year resident lived in a state for only part of the year, usually because of a move.
- Withholding is tax your employer takes from each paycheck and sends to a tax agency.
- A reciprocity agreement is a deal between states not to tax wages of each other’s residents.
- A credit for taxes paid to another state lowers your home-state tax for tax another state charged on the same income.
Which State Returns You File
Your situation decides which state returns you need. In every case, you file one federal return.
| Your situation | State returns you generally file |
|---|---|
| You moved during the year | Rules vary by state, but you generally file a part-year resident return in each state, covering income earned while you lived there. Check with your state’s Department of Revenue for more information on part-year filing instructions that apply to you. |
| You live in one state and work in another | A resident return reporting all income, plus a nonresident return reporting work-state income. |
| You earn property or business income in another state | A resident return, plus a nonresident return where the income comes from. |
| Your states have a reciprocity agreement | Generally, only a resident return in your home state, and it generally applies only to income earned. |
| One state has no personal income tax | No income tax return in that state |
How States Keep You From Paying Tax Twice
When two states can tax the same income, one of two tools usually prevents double taxation.
Credit for Taxes Paid to Another State
Your resident state generally taxes all your income and usually lets you claim this credit. For example, Virginia Tax says all income of Virginia residents is subject to Virginia tax, wherever it’s earned. Residents may qualify for a credit for income tax paid as a nonresident to another state.
Reciprocity Agreements Between Neighboring States
With reciprocity, you generally file only in your home state, and it applies only to income earned (or wages). You may need to give your employer an exemption form, so your work state doesn’t withhold tax. If it withholds anyway, file a nonresident return there to get a refund.
The Wisconsin Department of Revenue says Wisconsin has reciprocity agreements with Illinois, Indiana, Kentucky and Michigan. You can’t claim the credit on income covered by reciprocity.
How to File Taxes in Two States, Step by Step
Your resident return depends on numbers from your nonresident return, so order matters.
- Check each state’s residency rules and deadlines using the IRS list of state government websites.
- Complete your federal return.
- Prepare your nonresident return, reporting only income earned in that state.
- Finish your resident return last, claiming a credit for the tax you paid the other state.
USA.gov points you to each state’s tax agency for payment options and due dates.
A Commuter’s Two-State Filing Example
Say you live in one state and commute to a job in a neighboring state. Both states tax income and have no reciprocity agreement, so your employer withholds work-state tax.
You file one federal return, then a nonresident return in your work state reporting only those wages. Last, you file a resident return reporting all your income and claiming a credit for the tax your work state charged.
Sources
- IRS, State Government Websites
- USA.gov, State Taxes
- Virginia Tax, Credit for Taxes Paid to Another State
- Wisconsin Department of Revenue, Publication 125, Credit for Tax Paid to Another State
