However, this choice is subject to a significant number of regulations. In certain circumstances, it will not exempt you from the need you submit numerous state tax returns. If you resided or worked in numerous states throughout the tax year, you may be required to file returns. The ruling of the Supreme Court should, however, allow your home state to provide you with a tax credit on your resident return in exchange for the taxes you have paid to another state. Reside and work in one of the sixteen states or the District of Columbia that has tax reciprocity agreements. You won't have to file state tax returns in each of those states individually if you take advantage of the reciprocity provisions.

Commuting to Another State to Work

If you commute to work in another state from where you live, you will be required to submit two state tax returns: one for your home state, where you are considered a resident, and one for the state where you work, where you are considered a nonresident. Even money generated in the state in which you are considered to be "working" must be reported on the tax return for the state in which you live. On the other hand, you would include the salary you received in the state where you were working on your tax return for the nonresident state.

Following the Wynne ruling, many states now allow residents to claim tax credits on their state returns for taxes paid to other jurisdictions. Because the taxes you pay to the state where you work are effectively deducted from any taxes you owe to the state where you live, you will not be subject to a double tax burden.

Some States Have Agreements

These agreements allow residents of both states to deduct their state and local taxes. When citizens of one state often cross the border into a neighbouring state in search of employment in the other state, which is typically a more urban and higher-paying location, we see this phenomenon rather frequently. Many people who live in Camden County, New Jersey, commute across the river to work in Philadelphia.

If You Work for an Out-of-State Employer

It is a widespread misconception that you are required to pay state taxes to the state where your company headquarters is situated. Even without considering the Wynne ruling, it is not the case. The firm you work for may be headquartered in California, but you make your home in Idaho. However, under these circumstances, you would not be required to submit a tax return to the state of California. There is no correlation between the location of your company's corporate headquarters or home base and the state income taxes that you are subject to. There are a few different ways in which nonresidents of a state who do not physically live or work there might incur an income tax burden in that state.

If You Lived in Two States

If you relocated out of state during the tax year, you must submit two partial returns for the state where you previously lived. You will be brought back to your previous status with only one return. One will move to the state that you are moving to. In this scenario, your income and deductions must be split across two separate tax returns. Suppose you reside in two different states throughout the tax year. In that case, you should probably seek advice from your business's human resources department or contact a local tax specialist for assistance.

Spouses Who Work in the Different States

Historically, having residence in more than one state was a significant obstacle for families with members serving in the military. Military personnel are free from state residence requirements and taxes in the states where they are stationed, but, previous to 2009, their wives were not necessarily exempt from these requirements. This meant that both partners would be required to reside in their respective states. They would be required to pay taxes to both states.

Married couples, particularly those who have recently divorced, are living apart, or travel to work in another state, may discover that they owe taxes to more than one state. If you are married and discover that you must file state tax returns in more than one state, you are not disqualified from jointly filing your taxes. However, most states mandate that you report your and your spouse's combined earnings on your tax return.