Living in one state and working in another

The basic rule

Your home state can tax all of your income, wherever you earn it. The state where you physically do the work can also tax the wages you earn there. To stop people paying twice, your home state usually gives you a credit for tax paid to the other state. The result is that you pay roughly the higher of the two states' tax on those wages: the work state gets its tax first, and your home state collects only the difference, if any.

Take a New Jersey resident earning $90,000 in a Manhattan office. New York taxes the wages as a nonresident. New Jersey taxes the same income as a resident, then credits the New York tax. For a single person with no other income, New Jersey tax on that salary alone would be about $3,543 and New York tax about $4,270, so in practice most of the bill goes to New York. The commuter does not pay New York City tax, which applies only to city residents.

Reciprocal agreements

Some neighboring states have agreed not to tax each other's residents on wages at all. Under a reciprocal agreement you file a certificate with your employer, and the employer withholds only your home state's tax. You file one state return instead of two. Reciprocity covers wages only; it does not cover rental, business or gambling income earned in the other state.

Each state uses its own exemption form, for example Form REV-419 in Pennsylvania, Form MW507 in Maryland, Form IL-W-5-NR in Illinois, Form W-220 in Wisconsin and Form NDW-R in North Dakota. If you never file the form, your employer may withhold for the work state, and you will have to file a nonresident return there to get it back.

Reciprocity can make a large difference. A Pennsylvania resident working in Maryland pays Pennsylvania's flat tax (about $2,149 on $70,000) instead of Maryland's graduated tax plus a county tax (about $4,988 in Baltimore County on the same pay). The commuter still owes any Pennsylvania local earned income tax at home.

Local taxes do not follow state agreements

State reciprocity does not cover city taxes. Someone living in New Jersey and working in Philadelphia owes Philadelphia's nonresident wage tax (3.425%) even though New Jersey and Pennsylvania have a reciprocal agreement. A Kansas resident working in Kansas City, Missouri pays the city's 1% earnings tax. Detroit, Ohio cities and Kentucky occupational taxes also charge commuters. On the other hand, a Maryland county tax or the New York City tax applies only to residents. The local income tax guide sets out which is which.

Remote and hybrid work

As a rule, wages are earned where you sit when you do the work. If you live and work from home in one state for an employer based in another, usually only your home state taxes you. The main exception is the convenience of the employer rule used by New York and a few other states: if you work from home for your own convenience rather than because the employer requires it, New York treats the days as New York days and taxes them. Your home state may or may not give a credit for that tax. If you split time, wages are generally divided by the share of working days spent in each state.

Employers are supposed to withhold for the state where you work, and many payroll systems only know your office address. If you have moved or work from home, tell payroll so the right state is withheld.

Moving to another state during the year

If you move in the middle of the year you are a part-year resident of both states. Each taxes the income you earned while living there, and you file a part-year return in each. Your withholding should switch on the date you move: file the new state's withholding form and update your address with payroll the same week.

To estimate a year with a move, run the calculator once for each state on your full salary, then take each state's share of the year. For example, if you move after four months, add a third of the first state's tax to two thirds of the second's. Federal tax, Social Security and Medicare do not change with your address.

What this calculator does

The calculator taxes one state: the one you select. It does not prepare two state returns or compute a credit for tax paid to another state. If you commute across a state line, choose the state that will end up with most of the tax (usually the higher-tax state, or your home state under reciprocity), and use the compare tool to see both states side by side.