State Tax Returns for Non-Residents

If you are a resident of one state but work in another or received some type of income in a state other than the one where you currently live, you may have to file a tax return in both states.

Filing returns in both states won’t cause you to pay taxes twice. Thanks to a U.S. Supreme Court ruling in 2015, states are no longer allowed to tax the same income and are instead required to provide tax credits that can be subtracted from your total taxable income. Remember to always file a return in your resident state and include the income you made in the non-resident state so you can receive the tax credits.

While no one wants to hear that they have even more tax forms to file, filing multiple state tax returns is relatively simple. You can save time on this process by filing your federal return first and using those calculations to complete your state tax returns.

Calculating your non-resident percentage

Your non-resident percentage is a number that you can use to determine your taxable income, deductions, and/or your tax liability.

If you complete your federal tax return first, you can simply transfer the information to your state tax returns. Most states will have you list your total income in one column and your non-resident income in another. You can calculate your non-resident percentage from the totals in these two columns.

Using your non-resident percentage

Now that you have calculated your non-resident percentage, it’s time to use that number to find your taxable income, deductions, and tax liability. (Check the rules in the state where you reside for definitive information.)

  • Taxable income: If the state in which you are filing a non-resident return is one that calculates your income as if you were a resident, such as Virginia, simply multiply that number by your non-resident percentage to find your taxable income
  • Deductions: If the state in which you are filing a non-resident return does not calculate your income as if you were a resident, such as Maryland, multiply your non-resident percentage by your federal deductions and then subtract that total from your non-resident income (remembering to remove non-deductible federal amounts and add state-specific deductions)
  • Tax liability: In states like Delaware, you can cancel out your non-resident income by using your federal itemized deductions (after removing non-deductible items) and then multiplying your actual tax liability by your non-resident percentage

Special circumstances

Some taxpayers have special circumstances that can complicate filing multiple state tax returns:

  • Moving: If you moved to another state during the year, some states will require you to file a part-year return (this requirement will be noted by a “PY” on the state’s website where tax forms are available), while others will allow you to simply check a box indicating you didn’t live in the state for the full year on the regular resident return. Don’t forget to divide your income between the two states based on the date of your move.
  • Mistaken withholdings: If taxes were withheld by a non-resident state by mistake and you didn’t earn income there, reporting zero income for that state will result in a tax refund.

Non-resident state tax returns made easy by Key Tax Group

We are experts at resident and non-resident state tax returns, as well as state tax debt resolution. If you are required to file multiple state tax returns and want to make sure that your tax credits and deductions are calculated properly, contact the tax specialists at Key Tax Group for help with your non-resident state tax returns today.