Introduction

Working across state lines—whether temporarily, seasonally, or permanently—can create complex state tax obligations. Each state sets its own definitions of residency, sourcing rules for wages and other income, and rules for credits or reciprocal agreements. Getting this right avoids unexpected tax bills, unnecessary withholding, and penalties. This article gives step-by-step guidance, practical examples from my practice as a CPA, recordkeeping tips, and when to call a tax professional.

Why this matters

State income taxes can materially affect your after-tax pay. The Tax Foundation reports that state and local taxes are a significant part of the U.S. tax burden (Tax Foundation). Mistakes or missed filings can trigger assessments, interest, and penalties from state revenue departments. In my experience advising clients who travel for work, careful planning and documentation typically save more in tax and stress than the cost of professional help.

How states classify people: residency explained

  • Full‑year resident: You’re taxed by your home state on all income, regardless of where it was earned.
  • Part‑year resident: You’re taxed as a resident only for the portion of the year you lived in the state. Income earned while a resident is generally fully taxable by that state.
  • Nonresident: You’re taxed only on income sourced to that state (for example, wages earned while working physically in the state).

Residency tests vary. Many states use a domicile test (where you have your permanent home) plus a statutory day-count test (for example, 183 days in many tax contexts, though the specific day-count rules are state-dependent). Always check the state revenue department guidance for the exact standard. The IRS provides general federal guidance on state filings and interactions (irs.gov).

Sourcing wages and other income

Wages are usually sourced to the state where you performed the work. If you telework from State A for an employer in State B, some states tax income where the employee worked (State A), while others look to where the employer is located or where the work is directed. States also differ on sourcing for passive income, business income, and retirement income.

Common scenarios and what typically applies

1) You live in State X and work temporarily in State Y. You’ll usually file a resident return in State X (report all income) and a nonresident return in State Y for the income earned there. State X may offer a credit for taxes paid to State Y.

2) You move mid‑year from State A to State B. You normally file as a part‑year resident in both states, allocating income to the period you lived in each state. Keep careful records of the move date, final pay stubs, and any relocation forms.

3) You telework from a no‑income‑tax state for an employer in a state that taxes income. If you never physically enter the employer’s state, you typically pay only the no‑income‑tax state—however, nexus and employer withholding practices can complicate this. See your employer’s payroll department and the state guidance.

Reciprocal agreements and credits

Many neighboring states have reciprocal agreements that let commuters avoid filing nonresident returns; instead, the employer withholds only in the state of residence. Not all states participate—check state revenue sites.

If you pay tax to a nonresident state, your resident state will often allow a credit to prevent double taxation. The credit typically equals the lesser of: a) the tax paid to the other state on that income, or b) the resident state tax attributable to that same income. Read the resident state’s instructions carefully to compute the credit.

Withholding and payroll responsibilities

Employers generally withhold state income tax based on employee withholding forms and the employee’s reported work state. Problems arise when employers use only the employer’s location for withholding or when payroll systems don’t handle multistate workdays accurately.

In practice I’ve seen employees owe money because employers continued to withhold only to the employer’s state after the employee began working remotely from another state. Raise this with payroll early and supply any withholding or residency certificates the states require.

Recordkeeping checklist (practical items to preserve)

  • Daily or weekly log of where you worked in case of audits (dates, addresses, project/client names).
  • Paystubs showing state tax withheld by pay period.
  • Form W‑2 boxes that show state wages and state income tax withheld for each state.
  • Moving documentation (lease start/end, closing statements, driver’s license change, voter registration) when you change domicile.
  • Contracts or 1099s showing client locations for contractors.

Special considerations for remote or hybrid workers

Remote work has muddied the rules. Some states have enacted convenience-of-the‑employer rules (e.g., New York historically taxed teleworkers who worked for an employer located in the state unless the telework was for the employer’s convenience). Other states adopted clearer sourcing rules or issued temporary guidance after the pandemic. Because state guidance can change, check the relevant state revenue department for updates.

Example from my practice

A client moved from California to Nevada mid‑year and continued to provide services to California clients. We documented the move with a change of address, updated voter registration, and lease termination. On filing, California taxed the portion of income earned while an in‑state resident and the Nevada portion was not subject to state income tax (Nevada has no personal income tax). Because California taxes residents on all income while resident, accurate allocation and documentation were essential to justify the non‑California‑source income claimed.

Filing strategy and forms

  • File as a resident or part‑year resident in your domicile state if required.
  • File a nonresident return for any state where you earned sourced income but did not reside.
  • Use the nonresident schedules to allocate income; follow each state’s worksheet for wages and other income.
  • Claim a credit on your resident return for taxes paid to another state where allowed.

Avoiding common mistakes

  • Don’t assume brief work means no filing requirement—some states require a return if you had income sourced there or if taxes were withheld.
  • Don’t rely solely on payroll withholding; reconcile actual tax returns and claim credits as needed.
  • Don’t ignore reciprocal agreements—if available, file the required withholding certificate to stop unnecessary nonresident withholding.
  • Keep moving records to establish the change in domicile when you relocate.

When to get professional help

If you have multiple employers across states, frequent short-term assignments in several states, significant 1099 contractor income, or a move that crosses high-tax and no-tax states, a tax pro can:

  • Calculate fair allocation of wages and business income.
  • Prepare resident, part‑year, and nonresident returns accurately.
  • Identify and claim all available credits and adjustments.
  • Advise on withholding changes to employers.

Internal resources

Authoritative sources and further reading

Professional disclaimer

This article is educational and reflects common rules and examples as of 2025. It is not formal tax advice. State tax law is highly fact‑dependent and can change; consult a licensed tax professional or the relevant state revenue department for guidance tailored to your situation.

Key takeaways

  • Determine residency and document any change in domicile.
  • Source wages to the state where work is performed; allocate income when you move mid‑year.
  • File resident/part‑year and nonresident returns as required and claim credits to prevent double taxation.
  • Keep detailed records of work location, withholding, and moving events; correct employer withholding quickly.
  • When in doubt, consult a tax professional—multistate filings are common reasons taxpayers need amended returns or guidance.

If you want, I can outline the precise worksheets you’ll encounter on a typical nonresident return or walk through how to compute a state tax credit for taxes paid to another state.