Multi state Income

If you live in a different state from the one you work in, you may think you have to pay state income taxes twice. We’ll show you four ways to avoid this added expense.

1.ALLOCATE BETWEEN THE STATES

If you’ve moved from the state you work in to another state during the year, you can allocate a certain amount of income tax to the state you used to live in and your new home state. Your moving date determines when you stopped owing money to your former state and began owing it to your new home state. Complications can arise however, if your W2 (or 1099) shows only one of these states or worse – shows the wrong state(s) altogether.

If that is the case, we would need to use a combination of the other strategies below, namely, credit for taxed paid to other states or state wage allocation.

2.GET CREDIT FOR TAXES PAID TO OTHER STATES

If the income being reported on your W2 was already taxed by another state, causing a double-taxation scenario, most states will allow you to take a “credit for taxes paid to other states.”

For example, if you work in South Carolina but live in North Carolina, you would pay taxes on your W2 to South Carolina and then apply a credit for this payment on your tax return for North Carolina. So, you’ll only pay money to North Carolina on what you’ve earned there. (This is an option available in most professional tax software. If you’re not sure what to do you can always call us for advice.)

However, if you’ve moved to a state that doesn’t allow you to take credit for taxes paid to another state on your tax form, we can still help you avoid a double payment by filing returns in both states that are in legal compliance.

3.BENEFIT FROM STATE RECIPROCITY AGREEMENTS

Certain states have reciprocity agreements where you only have to file in the resident state. Some examples of states that have such agreements with neighboring states are Arizona, Illinois, Indiana, and Maryland.

4.TAKE ADVANTAGE OF REVERSE CREDIT STATES

If your home is in California but you’re currently earning and paying tax on that income in Oregon, California will give you a credit for the taxes you pay in Oregon. This is true for every state in the country.

A NOTE ABOUT CITY TAXES

Cities such as Detroit, New York, and Philadelphia tax you based on your residence, regardless of where you’ve earned your income. In these cases, you may not get a credit for taxes paid to other states. These are unique situations, and you can contact us for help if this applies to you.