If you worked in two different states during the year, you’ll usually file three tax returns: your federal Form 1040, a nonresident return in the state where you earned income but don’t live, and a resident return in your home state. Your home state taxes all your income, the other state taxes only what you earned there, and your home state gives you a credit for what you already paid to the other state so the same wages aren’t taxed twice. The order you file matters, and the paperwork only works if you get the sequence right.
Sort Out Your Status in Each State
Before you touch a form, decide what you are in every state where you worked. States use three categories, and your category controls how much of your income each state can reach.
- Resident: your home state, where you’re domiciled. This state taxes all your income from every source, including wages earned elsewhere.
- Nonresident: a state where you earned income but don’t live. It taxes only what you earned within its borders.
- Part-year resident: a state you moved into or out of during the year. Income gets split between your residency period and the rest of the year.
Your domicile is your permanent home, the place you intend to return to after any time away. States look at objective markers to pin it down: voter registration, driver’s license, where your family lives, where you keep a bank account, where you spend most of your time. You can only have one domicile at a time.
If you moved from one state to another during the year, you’ll file as a part-year resident in both. Income earned before the move goes to the old state; income earned after goes to the new one. The move date itself typically counts toward the new state.
How Your Wages Get Divided Between the States
For W-2 earners, the general rule is simple: wages are sourced to the state where you were physically located when you did the work. Live in State A but drive to an office in State B, and those wages belong to State B.
When you split time between two states, you need to calculate the percentage each one can claim. Take the number of days you physically worked in the nonresident state, divide by your total working days for the year, and multiply by your total compensation. That fraction is what the nonresident state taxes. Weekends, holidays, vacation, and sick days don’t count in the denominator unless you actually worked on them.
Your employer should already have done some of this on your W-2. Box 15 lists each state and the employer’s state ID number, and Box 16 shows the wages allocated to each state. If you worked in more than two states, your employer is required to issue an additional W-2 to capture the extra jurisdictions.1Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) Check those figures against your own records. If the employer allocated wrong, you’re the one who has to fix it on the state returns.
File the Nonresident Return Before the Resident Return
Order matters. Complete the nonresident state return first. It establishes the exact tax you owe to the work state, and you need that number to calculate the credit on your home state return. File the resident return first and you’re guessing at the credit.
So the sequence is:
- File your federal return.
- Complete the nonresident state return in the state where you worked but didn’t live.
- Complete the resident state return in your home state, using the nonresident tax liability to figure your credit.
Worked in more than two states? Finish every nonresident return before you start the resident return. Most commercial tax software handles the sequencing and will prompt you for the multi-state information in the right order. E-filing everything at once is common and usually goes through without trouble. On paper, many states require you to attach a copy of the other state’s return when you claim the credit, so keep copies of everything.
The Credit That Keeps You From Paying Twice
Without relief, a resident of State A who worked partly in State B would pay tax to both states on the same wages. The fix is a credit your home state gives you for the tax you paid to the other state. Nearly every state with an income tax offers a version of this credit.
Here’s how it works. You pay the nonresident state first on the income sourced there. Your home state then calculates its tax on all your income, including the wages the other state already taxed, and lets you subtract a credit for what you paid to the other state. The credit is limited to the lesser of two amounts: the actual tax you paid to the nonresident state, or the tax your home state would have charged on that same income.2Department of Revenue. PA Personal Income Tax Guide – Deductions and Credits – Section: Resident Credit for Tax Paid to Another State
That cap matters when the two states have different rates. If you live in a lower-tax state and work in a higher-tax state, the credit covers your home state’s share but not the whole amount you paid to the work state. You’ll effectively pay the higher of the two rates on that income. That’s not a filing error; there’s no way around it.
Some states also exclude certain income types from the credit. Interest, dividends, and gambling winnings often don’t qualify even if another state taxed them. The credit is usually limited to earned income like wages and business income.
You May Not Have to File in the Work State at All
Not every day of out-of-state work triggers a filing obligation. As of 2026, roughly half of income-tax states require nonresidents to file after even one day of work there. The other half give you some breathing room through de minimis thresholds based on days, income, or both.3Tax Foundation. Nonresident Income Tax Filing and Withholding Laws by State, 2026
- Day-based thresholds: Illinois, Indiana, and Montana use 30 days. North Dakota sets theirs at 20 days. Some of these exemptions require your home state to offer a similar exemption in return.
- Income-based thresholds: Minnesota’s is the highest at $15,300 and Vermont’s is the lowest at $100. Wisconsin ($2,000), Idaho ($2,500), and Georgia ($5,000) fall in between.
- Combined thresholds: Connecticut requires filing only if you cross both 15 days and $6,000 in income. Maine’s combined threshold is 12 days and $3,000.
If your work in the other state fell below its threshold, you may not need to file a nonresident return at all. But if the employer withheld tax for that state anyway, you’d still file to get the withholding refunded. Check the rules for any state you worked in, even briefly.
Reciprocal Agreements Can Cut Out a Return
About 30 states and the District of Columbia have reciprocal tax agreements with at least one neighbor. If your home state and work state have one, only your home state taxes your wages. The work state steps aside.
Common pairings include Illinois and Iowa, Indiana and Ohio, Virginia and the District of Columbia, Maryland and Pennsylvania, and New Jersey and Pennsylvania.4NJ Division of Taxation. PA/NJ Reciprocal Income Tax Agreement These agreements cover only wage and salary income. If you also earned rental or business income in the work state, the agreement doesn’t reach it.
To use a reciprocal agreement, file an exemption form with your employer (the specific form varies by state) so they withhold for your home state instead of the work state. If they withheld for the wrong state anyway, you’ll file a nonresident return in the work state just to claim the refund.
Remote Workers: Watch the Convenience of the Employer Rule
Standard sourcing puts income where the worker is physically located. A handful of states flip that rule for remote workers. Under the “convenience of the employer” doctrine, if you work from home for your own convenience rather than because your employer requires it, the income stays sourced to the state where your employer’s office is.
Six states adopted a version of this rule before the pandemic: New York, Connecticut, Delaware, Nebraska, Pennsylvania, and Arkansas.5Tax Foundation. Teleworking Employees Face Double Taxation Due to Aggressive Convenience Rule Policies in Seven States Alabama has since applied a similar approach. Connecticut’s version applies only to residents of other convenience-rule states, and Oregon’s is limited to certain executives.6National Conference of State Legislatures. State and Local Tax Considerations of Remote Work Arrangements
The rule creates real double-taxation exposure. If you live in a no-income-tax state like Florida and work remotely for a New York employer, New York can still treat your wages as New York-sourced. Florida can’t give you a credit because it doesn’t collect income tax, so you pay New York tax with no offset. Even if your home state does tax income, the credit is capped at your home state’s rate, so you’ll pay the higher of the two rates on that income. If you telecommute across a state line, find out whether your employer’s state applies this rule before you assume anything.
If One State Has No Income Tax
Eight states levy no individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington taxes capital gains but not wages.7Tax Foundation. State Individual Income Tax Rates and Brackets, 2026
Live in one of these and work in a taxing state, and you’ll file a nonresident return in the work state and pay tax there. You won’t file a resident return because your home state doesn’t have one, and no credit comes into play because there’s no home-state tax to offset.
Reverse it — live in a taxing state, work in a no-tax state — and it’s simpler still. Your home state taxes all your income and no credit is needed because you didn’t pay tax anywhere else.
Don’t Forget Local Income Taxes
State tax isn’t the only layer. Seventeen states and the District of Columbia let cities, counties, or municipalities impose their own income taxes. Ohio and Pennsylvania have the most, with hundreds of municipalities collecting them. New York City, St. Louis, Detroit, and Philadelphia all impose local income taxes that reach nonresidents who work in the city.
Local taxes run on their own rules. Philadelphia charges its city wage tax to both residents and nonresidents, and the state-level reciprocal agreement between New Jersey and Pennsylvania does not exempt New Jersey residents from that Philadelphia wage tax.8NJ Division of Taxation. Credit for Taxes Paid to Other Jurisdictions – Section: NJ/PA Reciprocal Agreement If you worked in a city with a local tax, check whether it applies to nonresidents and how it interacts with your state-level credit.
Estimated Payments When Only One State Is Withholding
When your employer withholds for one state but not the other, you may owe estimated tax payments to the state that isn’t getting anything. Most states follow rules similar to the IRS: you’ll face a penalty if you haven’t paid at least 90% of your current-year liability or 100% of your prior-year liability through withholding and estimated payments by the deadline. Some states set the threshold at 80% of current-year tax.
This comes up most when you start a job in a new state partway through the year, or when your employer only withholds for one state even though you owe two. Rather than waiting until April and taking the penalty, check whether you should be making quarterly payments to the second state. Most states that require estimated payments set a minimum expected liability between $400 and $1,000 before the requirement kicks in.
Keep the Records That Back Up Your Numbers
Multi-state filing lives on documentation. If a state audits you and you can’t prove how many days you worked inside its borders, it will assume the worst and tax you on more income than you actually owe there. Keep a contemporaneous log of where you worked each day: calendar entries, travel itineraries, expense reports, badge-in records. Save your W-2s, pay stubs that show the state withholding breakdown, and copies of every state return you file. Hold onto all of it for at least four years, since many states have longer audit windows than the IRS.