Do You Hate Paying Taxes? How to Make Sure You Don’t Pay State Taxes Double

Do you hate paying taxes? What if you have to pay twice?

Generally, laws prevent Americans from doing that, but sometimes, it still happens. Opportunities for double taxation often arise when people live and work in different jurisdictions. For example, if you prefer, but are not required to, work in a different location than your employer.

Even if you are avoiding double taxation, planning the rules can be difficult and require additional tax filing. Every state has different rules, but states generally require you to pay taxes and file a return if you’re a resident or don’t have nonresident income. That is unless the state has a reciprocity agreement with your country or does not charge income tax. You may be required to file a tax return with your employer.

State taxes can be complicated, so before you stick to the work-from-anywhere lifestyle, understand what tax season may have in store for you.

Don’t Worry About These Countries

States with no income tax will likely not require you to file a state income tax return. That’s right:

• Alaska
• In Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Wyoming
• Washington

What is a Retributive Tax Agreement?

If you work in a state that has a favorable tax treaty with your home state, you will not be taxed twice. As long as you fill out an exemption form for your state of employment and send it to your employer, your state of employment should not withhold taxes from your check and you will only be required to file a return with your home state. Just make sure your employer withholds your state taxes “otherwise, you may incur underpayment penalties at tax time,” warns tax firm Intuit’s help site.

For example, if you live in Wisconsin but travel across the border to Illinois for work, you won’t have to pay Illinois taxes or file a tax return in that state. You will only need to pay Wisconsin taxes and file its state form.

Note, “if you do not submit an exemption form in a non-resident state, your employer may withhold taxes for that state,” filing software company TaxSlayer says on its website. “If so, you will likely need to file a non-resident return to claim a refund of the taxes withheld.”

Similar agreements exist in all 16 states and the District of Columbia, according to the Tax Foundation, a nonprofit think tank.

What If There Is No Tax Return?

If there is no reconciliation between the two states, some states allow you to get a credit for taxes paid in the state where you do not live and work. To get the credit, you’ll need to file tax returns in both states. That means you’ve filed a resident state income tax return for all your sources of income and a non-resident tax return for your work income only.

Note:

• If the tax rate in the state where you will receive the credit is lower than in your home state, you may still owe back taxes.
• Accepting credit also requires residency, which can be tricky, warns Nathan Hagerman, a partner at the Taft law firm. Usually, it’s spending more than half a year in the state for the purpose of making it your permanent home, such as getting your email, getting your driver’s license or voting there, or buying a home in the state.
• Credits do not apply to local and state taxes.

Whose Is This Easy?

A number of states have a “efficient employer rule,” which means that if you work in another state for your own convenience (not a company requirement), you will owe taxes in the state where your employer is based. Unless you live and work in a jurisdiction with no income tax, you may be taxed twice on the same income.

Some states offer a credit that can help with some or all of the taxes you have to pay in the state where your employer is located. New Jersey, for example, offers a tax credit to offset the state tax its residents pay in New York because of the ease-of-use law while working from home.

Which States Have ‘Employer’s Law Ease’?

While the laws in each state may be slightly different, things to be aware of, according to Northwestern Mutual, include:

• Connecticut
• Delaware
• Nebraska
• New York
• in Pennsylvania
• New Jersey

What If I Split My Time Across Multiple Regions?

Spending time in multiple states can further complicate your taxes and may require you to track the amount of time you spend in each state.

More than half of states with personal income taxes require employers to withhold tax from a nonresident worker’s wages from the first day the nonresident worker visits the state for business purposes, but some states allow you to work there for 30 days or more first, according to the Mobile Workforce Coalition, a group of 280 organizations that advocates for passive tax-simplification laws.

Athletes who frequently cross state lines to practice and play or consultants and construction workers who may spend months at a time on projects in different cities will have to pay income tax in each state where they earn their income.

Medora Lee is a money, markets, and personal finance reporter for USA TODAY. You can find him at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday

This article first appeared in USA TODAY: Do you hate paying taxes? How to make sure you don’t pay state tax twice

Reported by Medora Lee, USA TODAY / USA TODAY

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