What if I live in one state but work in another?

If you live in one state but commute to a neighboring state for work both home and work states will usually require you to pay tax on the income you earned and to file a tax return for each state. You should also expect to be taxed at each state’s individual tax rate which can vary quite a bit.

An exception to this rule would follow if you worked in a state without an income tax, for example Texas, but lived in one that did have one such as Louisianna. In this case, you would not need to pay Texas any income tax, and would not be required to file a Texas tax return, but you would still be responsible for filing a Louisianna tax return and paying that state any income tax you owed.

In some cases, a state may have reciprocal agreements with any number of neighboring states to avoid taxing out of state workers. These taxpayers would only be required to file one state tax return.

In general, to prevent you from being unfairly subjected to double taxation, the state where you earned your income typically issues a credit for tax withheld during the year to your state of residence.

This mitigates somewhat the hassle of having to file two state returns.
However, the amount of the credit is rarely equal to the tax owed because of the processing work involved. Consequently, if your work and living arrangements involve two or more states you should bank on paying more in state tax.

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