Dealing with multiple states at tax time can be overwhelming for someone who is not a tax professional. Unless you live in multiple states throughout a tax year, income you earn is taxed by your state of residence, regardless of where you or your spouse earns the income. Some cases might cause you to owe taxes to multiple states or pay taxes to a state in which you don't reside.
Living in Multiple States
If you and your spouse live in more than one state throughout the year, the income you earn while living in each state is taxed by that particular state. For example, if you earn $12,000 while living in Wisconsin and $10,000 while living in Illinois, you owe tax to Wisconsin on $12,000 of income and tax to Illinois on $10,000 of income. You're required to file both state tax returns and report your total income, but pay tax on only the income earned while you were a resident of the state.
Living in Multiple States Tax Returns
On each state return, you report your federal gross income entered on your federal tax return. Separate your income according to each form's instructions to specify the income earned while residing in the particular state. In most cases, income is determined on a ratio, which is based on the number of months you and your spouse lived in each state. Calculate any credits or deductions based on the ratio. Determine your income tax owed for each state.
Work and Live in Separate States
If you or your spouse works in different states than your state of residence, your employer might withhold and pay taxes to the state in which you work. For example, if your spouse works in Kansas but lives in Missouri, his employer might pay taxes to the state of Kansas. Because you and your spouse live in Missouri, you owe tax on your joint income to the state of Missouri, not Kansas.
Work and Live in Separate States Tax Return
File your state of residence tax return and report your total federal gross income, which you entered on your federal tax return. Calculate any credits or deductions based on your federal income. File an additional form, sometimes called a nonresident form, to receive credit for taxes paid to the other state. Determine your income tax owed and pay any tax owed to your state of residence. An alternative to claiming a credit for the taxes paid to the other state is to file a non-resident tax return with the state in which you work. Report your federal gross income, but indicate that none of the income earned is taxable by that particular state. Because you're not a resident of the state, you can't claim any credits or deductions, and you won't owe tax on the income. The amount of your refund should equal the income taxes paid to the state.
Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.