Multi-State Tax Filing Guide

Multi-State Tax Filing Guide

Working or living in multiple states creates complex tax filing obligations. Understand the rules for residency, sourcing income, and avoiding double taxation.

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When Multi-State Filing is Required

You may need to file in multiple states if you:

• Moved from one state to another during the year
• Work in a different state than where you live
• Own rental property or a business in another state
• Earned income from sources in multiple states

Residency Rules

Resident

• Domicile in the state, OR
• Maintained a permanent place of abode AND spent more than 183 days in the state (varies by state)
• File as resident, report all income

Part-Year Resident

• Moved into or out of state during the year
• File part-year resident return
• Apportion income based on residency periods

Nonresident

• Live in another state
• Earned income from sources in the state
• File nonresident return
• Report only state-source income

Avoiding Double Taxation

Credit for Taxes Paid to Other States

Most states provide a credit for income taxes paid to other states on the same income to prevent double taxation. Generally:

• Resident state: Report all income, credit for tax paid to other states
• Nonresident state: Tax only source income from that state

Reciprocal Agreements

Some states have reciprocal agreements allowing residents of one state to work in another without paying nonresident income tax:

Examples:

• IL/IA/KY/MI/WI reciprocity
• MD/DC/VA reciprocity
• PA/IN/MD/NJ/OH/VA/WV reciprocity

Requires: Filing exemption certificate with employer

Special Situations

Remote Workers

COVID-19 accelerated remote work, creating new multi-state tax issues:

• “Convenience of employer” rules (NY, NE)
• Temporary vs. permanent work location
• State sourcing of wages

Telecommuters

Where you physically perform work generally determines state taxation, but some states have special rules.

Professional Athletes & Entertainers

“Duty days” allocation formulas

Statutory Nonresidents

Some states (e.g., NY) have special rules that can make you a statutory resident even if you don’t meet the standard tests.

Income Sourcing

Different types of income are sourced differently:

Wages: Where services performed Business Income: Where business is conducted (apportionment formulas) Rental Income: Where property is located Interest/Dividends: Where recipient is domiciled Retirement Income: Varies by state; some don’t tax pensions Capital Gains: Generally where seller is domiciled (exceptions apply)

State-Specific Considerations

No Income Tax States:

• Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming
• New Hampshire (interest and dividends only)

Community Property States:

• Special rules for married couples (AZ, CA, ID, LA, NM, NV, TX, WA, WI)

Planning Strategies

Establish Clear Domicile

• File Declaration of Domicile
• Register to vote
• Obtain driver’s license
• Update will and estate plan

Document Days

• Keep calendar of days in each state
• Maintain travel records

Structure Compensation

• Deferred compensation
• Sign-on/retention bonuses

Retirement State Planning

• Some states don’t tax retirement income
• Consider moving before retirement

Related Resources

Multi-State Tax Compliance

Multi-state taxation is complex and varies significantly by state. Contact us for guidance on your specific multi-state situation.