If you have lived and worked in more than one state, you must have experienced the Multi State Taxation issue. In fact, handling Multistate Taxation is one of the essentials of Taxation that you as a worker of different states should file in your returns. You may need to file returns of part-year resident or nonresident nature in situations like these.
Let’s find out some of the scenarios where you need to handle Multistate Taxation.
- Working in different States: Are you a worker in different states? Do you commute from one state to other for work? In that case, you need to file multistate returns such as resident tax returns in the state you reside and the nonresident return in the state you’re commuting to. You’d include all your income on your resident tax return which also contains the income you make in your work state. This happens due to the tax structure which taxes the resident’s income from all sources, including the out-of-state incomes. You need to include only the wages you made in the state in your non-resident state tax return.
- Working for an employer who is out-of-state: A common myth prevalent about state taxes is paying income tax to the state where your employer resides. For e.g. if you are working in an Alabama based company and are a resident of Arizona, you don’t owe income taxes to Alabama as the location of the company you’re working in has not much to do generally with state income tax.
- Shifting to another state: You will have to pay two part-year state returns if you are moving to a new state during the tax year – one of which will go to your former state and the other to your new state. You would require dividing up your income and deductions between both the states on each return.
- Spouse working in another state: Military families, mostly, having residences in more than one state faced this issue. Though military members are exempted from state residency and taxes in the states they are stationed in, their spouses weren’t exempt before 2009. Thus the problem of handling multistate taxation happened in their case where the spouse owed taxes to both states. This problem has been largely eliminated since 2009 with the emergence of Military Spouse Residency Relief Act.
If you wanted to know more about the Essentials of Taxation, you may like to attend a conference, ‘Handling Multistate Taxation Properly’, where expert speaker Vicki M. Lambert, CPP is to speak about Multistate taxation and its challenges. Learn more about the handling of state taxes in this conference.