Overview

Multistate tax filing happens when a single taxpayer—an individual or business—has tax obligations in more than one state. The three pillars are residency, income sourcing, and credits or reciprocal rules that prevent double taxation. State rules vary widely; use state tax websites and federal resources when in doubt (IRS: https://www.irs.gov/; Tax Foundation: https://taxfoundation.org/).

Quick checklist (what to do first)

  • Identify your resident state(s) and any states where you worked or earned income.
  • Gather records that show where you lived and worked (days in-state, employer location, remote-work logs, leases, utility bills).
  • Determine which income each state considers “sourced” to it (wages, business receipts, rental income).
  • Check for resident credits, reciprocal agreements, or nonresident return filing thresholds.

Key concept: Residency

States use different tests. Common approaches are:

  • Domicile (where you intend to make your permanent home).
  • Statutory or day-count tests (e.g., 183 days or other state-specific thresholds).

For deeper guidance on how states test residency, see FinHelp’s guide on State Income Tax Residency Tests: Domicile vs Statutory Residency.

How income is sourced

  • Wage income is generally sourced to the state where services are performed. If you telecommute from State A for an employer in State B, many states tax the wages to State A, State B, or both depending on rules and agreements.
  • Business income is often apportioned based on sales, payroll, and property factors (states use different apportionment formulas).
  • Rental and investment income is usually sourced to the location of the property or the payer.

Example: A resident of a no-income-tax state who works for a New York employer may still owe New York tax on income earned for services performed there. If your resident state has an income tax, you normally claim a credit for taxes paid to the other state on your resident return. If your resident state has no income tax, you simply may owe tax only to the source state.

Credits, reciprocity, and avoiding double taxation

  • Most states offer a credit for income taxes paid to another state so residents aren’t taxed twice on the same income. Claiming that credit typically occurs on your resident state return.
  • Some neighboring states have reciprocal agreements that let workers pay tax only to their state of residence (check specific state guidance).

Withholding and estimated tax obligations

Practical tips I use with clients

  • Track days in each state (a simple spreadsheet or time-stamped work logs helps). In my practice, clean day-count records often resolve residency questions during audits.
  • Carry documentation that supports your domicile claim (driver’s license, voter registration, primary home utility bills).
  • If you move midyear, prepare resident and nonresident filings for the appropriate portions of the year.
  • Review employer withholding when you change work locations and correct W-4/W-4 state equivalents promptly.

Common mistakes

  • Assuming remote work always eliminates the source state’s right to tax wages.
  • Failing to file a nonresident return where you earned income and crossing thresholds.
  • Missing a resident credit claim or applying it incorrectly.

When to get professional help

Multistate rules interact with business nexus, state withholding, and apportionment law. If you have sizeable income, frequent moves, or a multi-state business, consult a CPA or tax attorney. This article is educational and not a substitute for personalized tax advice.

Internal resources

Authoritative sources and further reading

Professional disclaimer

This content is educational and reflects general principles current as of 2025. It is not legal or tax advice. For a tailored plan, consult a licensed tax professional or your state tax agency.