Multi State Tax Issues
Basic Concept:
With a Tax Home
1 ) Your home state taxes total worldwide income from whatever source even if you do not work at home.
2) You are also taxed at the source of the income and pay state taxes to the work state.
BUT, You are never DOUBLE taxed.
Home taxes are offset by credits for taxes paid to other states up to the amount that the home state would levy on the same income. In the end, you pay the higher of the two tax rates.
**If you live in an area with a municipal, school district or county tax, you also base this on total worldwide income. Any amounts paid to other local jurisdictions (not states) offset the amounts paid to your local area.
Without a Tax Home
You are a part year resident or non resident in each state you work and pay taxes to these states on income earned there.
Related Questions
There are states that do not have an income tax. Is it good to work or live there?
The following states (and territories) have no income tax: WA, FL, TX, SD, NH, NV, AK, TN, WY, DC and the USVI. They are great to work in but only if your tax residence is there. If your tax residence is in a state with an income tax you are still liable for home state taxes on the income earned there. If you are in this situation, and your company cannot withhold taxes for your home state, you may need to make estimated payments to cover the additional amount.
My W2 has income from a state that I did not work in, nor was I a resident at any time?
Call your company and make sure there was not a mistake. There a a few companies that report income to the state where the company is located. This is fraud, either willful or because the company (or their payroll department) does not understand income source laws.
What are the tax rates of each state?
Click here for a ranking of state taxes - When evaluating each area, you also should consider sales, property, real estate and other taxes. Costs of living should also be factored in.
South Dakota and Wyoming are the two best states in terms of the lowest overall tax burden.
Are there states with reciprocal agreements?
There are states that have income tax agreements. Click the following link for the most up to date list. State Tax Agreements
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