How State Income Taxes Work

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. Massachusetts Department of Revenue ]. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Up Next " ". If that commuter train takes you to work in a different state from where you live, you may need to file taxes in both.

Five Things You Need to Know About Taxes If You Work from Home your employer takes care of your taxes for you, deducting federal, state, Social Security, and Medicare taxes with each paycheck.

State of Residence

If your state of residence imposes an income tax, you must typically report all income you earned during the year and pay tax at the appropriate rate, regardless of where you earned the money. However, in states that don't impose income tax, you won't need to report your out-of-state income. In most cases, if the state in which you earned your income collects income tax, you must file a return. If your state of employment collects income tax, you must file regardless of whether you pay tax in your home state.

If both states collect income tax, you may pay taxes on the same income twice. However, many states offer tax credits to individuals who have already paid income tax to another state. If your home state has a reciprocal agreement with the state in which you work, you may be able to file a single return in your home state.

Under a reciprocal agreement, you can request an exemption from withholding for the wages you earn out-of-state, and your employer will no longer send taxes to the state in which you work.

In some cases, the employer may even be able to pay withheld taxes to your state of residence to make tax preparation simpler.

And depending on which state you call home, and how much money you make, the part of your income that belongs to the government can be really small or really big. State governments get some of their operating money from the federal government, but most of the rest of the money they need to operate comes from taxes. State governments collect all kinds of taxes, many of which you probably know about like sales tax and some that you may never have heard of like severance tax.

But for many states, the largest source of revenue is income tax -- a tax on any money that people or businesses in the state earn. Even though in this article we'll focus on the individual income tax -- the tax on the earnings of individual people, keep in mind that businesses have to pay tax on the money they earn as well.

Income taxes can be pretty complicated, especially if you consider that many of the fifty states collect different types of income taxes, different rates of income taxes and some states collect no income tax at all. Each state even has its own rules about who is taxed and how they're taxed. So how can you make sense of it all? And what happens if you live in more than one state? If your morning commute takes you from kitchen to couch, consider it a win.

After all, what could be better than skipping roadway hassles and diving straight into your workday? It took years to convince your employer that you'd make an ideal telecommuter.

Now you are enjoying the fruits of your labor, a perfect blend of working at home and traveling to consult with clients in other states. It's all going according to plan -- until tax time arrives. Suddenly, you're faced with paying taxes in your state of residence and the states in which you work.

The Internet of Everything is abuzz with questionable tax advice for people working in one state and living in another, including a few dubious suggestions that you're pretty sure could land you in hot water. To make matters more complicated, the rules and regulations covering personal income tax vary from state to state.

If you commute across state lines to get the job done, it can have specific and surprising consequences on your personal income taxes. These 10 tax tips can help you navigate the way. If you're living and working in two different states, you'll need a firm understanding of key tax-related definitions. The distinctions between residency and non-residency — and, more importantly, how they affect your taxes — vary from state to state. You'll want to investigate the tax rules and regulations that apply to the states in which you live and work.

It may seem obvious, but it's worth mentioning that the state in which you reside is considered your state of residency. In general, you'll pay state taxes on all the personal income you earn in your home state unless you live in a state without personal income taxation. If you work in a state but don't live there, you are considered a non-resident of that state.

You will probably be required to pay taxes on any income you earn there, too. Some states have an earned-dollar threshold that must be met; others have a time threshold. In Kansas, non-residents are subject to tax withholding from the first day they travel to the state for work [source: Massachusetts Department of Revenue ].

State of Employment

In most cases, your home state will allow you to claim a tax credit on your resident tax form for the taxes that you paid to your work state. Non-Employment Income You’ll also need to file a nonresident tax return if you have non-employment income from a state that is not your home state. We would like to show you a description here but the site won’t allow us. In general, you'll pay state taxes on all the personal income you earn in your home state (unless you live in a state without personal income taxation). If you work in a state but don't live there, you are considered a non-resident of that state.




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Where do I pay state income taxes? Home; Live Here, Work There. Where do I pay state income taxes? Live Here, Work There. Where do I pay state income taxes? March 25, Facebook Twitter but you are still faced with the dilemma of where and how to pay . How much revenue do state and local governments collect from individual income taxes? State governments collected $ billion—27 percent of state own-source general revenue—from individual How do state and local individual income taxes work? | Tax Policy Center. Most of the taxes you pay go to the federal government, but some go to the government of the state you live or work in. And depending on which state you call home, and how much money you make, the part of your income that belongs to the government can be really small or really big.




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