Overview

Filing a nonresident state tax return means reporting and potentially paying state income tax on income that a state says was earned within its borders even though you are not a resident. States designed these returns to capture taxable activity tied to their economy — wages earned while physically working there, rental income from property located in the state, business income from a state-based activity, and other state-sourced income.

Rules vary widely by state. There is no single federal rule that overrides state definitions of residency or source. To determine whether you must file, use three practical tests (explained below) and verify with the relevant state department of revenue. For general guidance on multistate taxation see the IRS and state DOR resources (for example, the New York Department of Taxation and Finance and California’s Franchise Tax Board provide practical guidance for nonresidents).

The three key tests states use to require a nonresident return

1) Source-of-income test

  • What it is: States tax income that is considered “sourced” to the state. For employees, that frequently means wages earned while physically working in the state. For landlords, it means rental income from property located there. For businesses, it means revenue attributable to in-state activity.
  • How to use it: Identify where each dollar of income was earned. If the state says the income is sourced to it, you likely must file a nonresident return. Check the state’s definition of “source” because states differ in allocation rules.

2) Presence/days or tie-to-state test

  • What it is: Many states use the number of days you are physically present in the state as one factor in residency or nonresident filing thresholds. Some states use a 183-day rule for residency; others apply shorter look-backs or statutory day counts for nonresidents.
  • How to use it: Track travel and in-state work days. Even short repeated visits can trigger filing requirements. Note: specific day-count thresholds and how days are counted vary by state—always verify on the state DOR website.

3) Business or tax nexus test

  • What it is: If you run a business, hold rental property, or have a permanent place of business in the state, you can create a tax “nexus” that requires filing. Nexus rules differ depending on whether you’re an individual, an employer, or a business owner.
  • How to use it: Review the state’s nexus and apportionment rules for individuals and pass-through entities. If you meet nexus, you may need to file a nonresident return and report business income allocable to that state.

Additional tests and special rules

  • Convenience-of-the-employer rules: Some states (notably New York) have a “convenience of the employer” rule that taxes remote work performed for a New York employer unless the work is performed for the employer’s convenience outside New York. This rule can create resident-like taxation for out-of-state employees—confirm the exact rule with the state’s tax authority (see New York guidance).
  • Reciprocity agreements: Neighboring states sometimes have reciprocity agreements (for example, some pairs allow residents to avoid filing nonresident returns when they work across the border). These agreements are limited and vary by state; check the state DOR or the National Conference of State Legislatures for listings.

Practical examples (illustrative)

  • Short-term assignment: If you live in State A but worked in State B for a week and earned wages there, State B may require a nonresident return to tax those wages. Whether you owe tax depends on State B’s thresholds and whether withholding covered the liability.
  • Rental income: If you own and rent a condo in State C but live in State D, State C will typically expect a nonresident return reporting rental income and expenses tied to that property.
  • Remote work and employer-based rules: If your employer is located in State E but you work from State F, some states tax based on where the work is done, while a few (e.g., New York) may look to employer location or convenience rules. Check both states’ rules and your employer’s withholding practices.

How to determine your obligation — step-by-step

  1. List all income sources and where each dollar was earned. Include wages, freelance/contract income, rental and business income, retirement and partnership pass-through allocations.
  2. Track your physical presence and categorize days by purpose (work, vacation, etc.). Keep contemporaneous records—calendar entries, project logs, and travel receipts.
  3. Search the state department of revenue guidance for nonresident and part-year resident instructions. Look up forms and filing thresholds. (Examples: New York IT-203; California Form 540NR; Massachusetts Form 1-NR/PY—confirm the correct form and year on each state’s DOR site.)
  4. Assess nexus if you operate a business or receive rental income tied to the state. If you have employees, discuss withholding and registration obligations with payroll.
  5. Calculate tax and compare to withholding. If taxes are owed, file the nonresident return by the state deadline (usually the same calendar year filing deadline state residents follow; many states conform to federal due dates).

Common pitfalls that lead to surprises

  • Not tracking days worked in other states: Without day-by-day records, the state’s auditors have an easier time asserting tax obligations.
  • Ignoring withholding: Employers may only withhold based on residence or employer location. That can leave you under-withheld in the state where you worked.
  • Overlooking pass-through income: Partnership or S-corp allocations tied to state-sourced activity often require nonresident returns for partners or shareholders.
  • Relying on employer statements alone: Employers can misapply withholding rules or miss reciprocity nuances—ultimately you’re responsible for filing accurately.

Recordkeeping checklist

  • Daily work log showing locations and hours
  • Project invoices or contracts with dates and locations
  • Rental agreements and property expense records
  • Paystubs showing state wages and withholding
  • Business receipts and apportionment schedules

Credits and avoiding double taxation
Most states provide a credit on your resident return for taxes paid to other states on the same income to reduce double taxation. The mechanics and allowable credits vary by state—usually you claim a credit where you are the resident to offset tax you paid as a nonresident elsewhere. Keep documentation of the nonresident return and taxes paid to support the credit claim. See your state’s department of revenue pages for details and examples.

Deadlines, penalties, and interest
Nonresident returns generally follow state filing deadlines, which commonly mirror federal deadlines but can differ. Late filing or late payment can trigger penalties and interest. If you think you owe tax and missed a filing deadline, file as soon as possible and contact the state DOR about payment options—many states offer installment plans or penalty relief abatement in limited circumstances.

When to consult a professional

  • You have multi-state employment and complex allocations (e.g., travel to several states in one year).
  • You own property or operate a business in multiple states.
  • A state tax authority sends a notice or audit letter.
  • You’re contemplating a move that may change residency status or have significant tax implications.

Tools and resources

Authoritative sources and links

  • State tax department guidance (search your state’s DOR for “nonresident” or “part-year resident” forms and instructions).
  • New York Department of Taxation and Finance (example: guidance on nonresidents and the convenience-of-employer rule).
  • California Franchise Tax Board, Nonresident and Part-Year Resident Manual.
  • National Conference of State Legislatures (reciprocity and nexus resources).

Professional note
In my practice I’ve found that the single most helpful habit for clients is contemporaneous recordkeeping—daily logs that show where work occurred dramatically simplify state allocation and reduce audit friction. Employers can help by applying correct withholding, but taxpayers must verify and, where needed, file nonresident returns themselves.

Disclaimer
This article is educational and does not replace individualized tax advice. State tax laws change and vary by facts; consult a qualified tax professional or your state department of revenue to confirm obligations for your situation.