Our Blog - MC Tax Relief

Important in this context, keep in mind that you can always take assistance from IRS tax problem solvers in case of any tax-related solutions.

Now, in general, you must pay non-resident income taxes in the state where you work and resident income taxes in the state where you live, all while submitting tax returns in both places. Regardless, there are several exceptions to the overall norm. The only time this does not apply is when one of the states does not levy income taxes. Another instance is when two states have reached a reciprocal agreement.

Alaska, Nevada, Florida, Texas, South Dakota, Washington, and Wyoming are the only states whose people do not pay any income tax. Only two states, New Hampshire and Tennessee impose a tax on interest and dividends. If you work in one of those nine states but live in one of the other 41 states (including the District of Columbia) that has state income taxes, you will normally only have to pay resident state income taxes in the state where you live. Similarly, if you live in one of those nine states and work in one of those nine states that have a state income tax, you would only have to pay nonresident taxes in the state where you work.

If you live in Virginia and work in Tennessee, for example, you would pay Virginia resident state income taxes. You would also have to pay Virginia nonresident state income taxes if you worked in Virginia but lived in Tennessee. In these circumstances, however, you would only need to submit one state income tax return.

What if you reside in Wisconsin and commute to Illinois every day ? It just so happens that Illinois and Wisconsin have a reciprocal tax arrangement in place. In this example, your Wisconsin employer would deduct Wisconsin state taxes from your payment but not Illinois state taxes. If you live in Illinois but work in Wisconsin, your Illinois employer will only collect state income taxes from your paycheck if you are a resident of Illinois. You would simply have to submit one state income tax return in both circumstances.

If you work in a state that does not have a reciprocal agreement with the state where you live (for example, Indiana), you will be required to submit income tax forms for both jurisdictions. However, you would be entitled to claim a credit for the state income taxes you paid in the nonresident state on your resident state income tax returns. As a result, you only have to pay taxes in one state, despite having to deal with the hassle of submitting returns in both.

However, keep in mind that reciprocity is not a given. You must make a request with your employer to have your income taxes deducted based on your home state rather than where you work. You will be taxed by both states unless you make a formal request with your employer, and you will be compelled to file two state tax returns. IRS tax problem solvers can be of special assurance in this regard.

There are several online tax preparation software tools that come with directions on how to fill out multi-state tax returns if your tax situation is not difficult and easy. If you have the inconvenient situation of residing in one state while working in another, and the prospect of filing your state taxes on your own sounds intimidating, delegate the duty to an attorney.