When Work Means Taxes in Multiple States

I myself interned in three different states before taking a full-time job in a fourth!

For many young engineers, internships take them outside their home state, scattering them east, west, north, and south to jobs all over the nation. The summer passes, the school year begins, and pretty soon it’s time to file taxes. What do you do?! You might live in one state, go to school in a second, and work in yet a third state! Does that make you a part-time resident? Do you have to pay double taxes? And once you graduate, maybe you’re moving all over the country for full-time work. What then?

Take a deep breath. As I’ve said before on this blog, taxes are not scary, even when things get a little complicated. I’m speaking from experience as someone who actually messed up her state taxes quite badly the first time I had to file taxes for an internship. I’ll walk you through what I consider to be some of the most common scenarios and help you figure out what you need to do, that way you can avoid making all the mistakes I did.

Overview

I’m going to go through these scenarios from the perspective of a current college student or recent grad. I will detail how you should file in each of the states you’ll touch throughout the year. If you’re not in college, just ignore the portion of the scenario referring to school. Where you go to college actually doesn’t matter much for your tax return as a college apartment or dorm is typically not considered a permanent domicile (unless you have gone through a formal process with your university’s state to establish residency).

Scenario 1: Lived and Learned in State 1, Interned in State 2

The state where you established residency (a.k.a., where you have your driver’s license, where your primary home is) is also the state where you go to school. You interned (or took any non-permanent work assignment) in another state. This means that you’ll file as a resident in your home state, and a non-resident in the state where you took your temporary job. Start with filing the non-resident tax return. You’ll figure out the amount of tax you owe to that state in isolation (you’ll only pay tax in that state on income you made in that state). Your home state will then give you a credit on your home-state tax return for the amount you paid to the other state, so you will not owe that money twice.

Scenario 2: Lived in State 1, Learned in State 2, Interned in State 3

This scenario means that you’ll file taxes as a full time resident in the state where you live (for a lot of college students, that’s where your parents’ permanent home is; otherwise it is wherever you have established your permanent domicile). You probably won’t have to file at all in the state where you went to college unless you had a job during school. If you did, just treat it as another “internship” and file taxes there as a non-resident. You will file taxes as a non-resident in your internship’s state, and use the tax you paid to that state as a credit on your home state taxes.

Scenario 3: Lived in State 1, Moved for a Full-Time Job in State 2

If you graduated or left school, or if you simply got a new job, you’re going to file as a part-time resident in both State 1 and State 2. In most cases, the states will only ask you to pay taxes on the income you earned while a resident of their state. They will commonly pro-rate your standard deduction (that’s the standard amount you get to subtract from your income) by the number of days you spent in their state. The key reason why you’re a part-time resident instead of the resident-nonresident setup we saw in the other scenarios is the permanence of the job. Unlike an internship, a full-time job is meant to last an extended period of time, and indicates that you are actually uprooting yourself from one state to another.

Summary

You’ll want to file taxes in any state where you’ve lived or worked throughout the year. Use the above guide to figure out your residency situation. File nonresident taxes first, and use the tax you paid in those states as a credit in your home state. If you’ve moved for full-time work rather than a temporary intern/co-op position, you’ll file as a part-time resident in both your state of origin and your new state. An extra side-note: if you work in a state that is geographically close to your home state, check and see if the two states have a reciprocal agreement that will make your life easier at tax time.

Have you ever had to file for multiple states? Did you come across any challenges or weird issues?

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