Living a dynamic lifestyle that involves multiple residences in different cities can be exhilarating, but it also adds a layer of complexity to the annual ritual of paying taxes. Let’s delve into the nuances of paying taxes while living in multiple cities, exploring key considerations, strategies, and tips to ensure a smooth and compliant tax season. Let’s start with some basics.
How do I handle filing taxes when I’ve lived in multiple states?
As a simple, general rule of thumb, you should expect to file a state return in any state where you have earned income, including from wages, self-employment, or from owned property. How you file, on the other hand, is where the complexity lies. For instance, some situations will require you to file part-year resident returns, especially if you’ve changed jobs. Those living in Georgia know this as Form 500. Other times, you may be expected to file a nonresident state return, such as when you’ve earned income from a partnership in another state.
Complicating matters somewhat are state reciprocity agreements, which helps taxpayers avoid paying double tax in multiple states by allowing them to only pay taxes in the state where they live. Many states don’t have these agreements at all, however.
Rather than throwing up our hands and saying “it depends,” let’s go into a few examples of multi-city tax filing:
For those who moved and changed residencies:
- Most likely, you will need to file a part-year resident tax return in each state, depending on how long you lived in each state and whether both states withheld income taxes.
- Note that moving expenses for most taxpayers are no longer tax deductible.
For those who live in one state but work remotely in another:
- This has been more and more common for Americans in the past few years, but where you pay taxes depends greatly on your state’s reciprocity agreements. For some, doubling up on returns is not required.
- It is likely that you will need to pay taxes to the state where you work, not the state where you live.
- For states without reciprocity, you will likely need to file a resident return and a non-resident return.
For those who inherited property in another state:
- You will likely need to file a resident return for the state in which you live and a non-resident return for the state in which you own the extra property.
- If it is an income-producing property, such as a rental or vacation home, you will need to file to report that income.
For those who have earned income in multiple states:
- The gig economy has promoted the idea of independent contractors earning income across the U.S. Unfortunately, you may need to file returns for each state where you’ve earned income.
- Those who have rental properties that earn income in multiple states will also need to file for multiple states.
For those who lived in multiple states full time:
- If you have lived in another state, you will need to fill out part-year return for each state. You will either allocate based on how long you’ve lived in each state, or, if you’ve earned income, the tax withheld in each state.
What are some other considerations?
Beyond state taxes, cities and counties also may need separate filings. For example, those splitting their time between New York City and Atlanta will need to file in Georgia, New York, and New York City.
Paying taxes while living in multiple cities may seem like a daunting task, but with careful planning, awareness of tax regulations, and strategic decision-making, you can navigate the process with confidence. Stay informed, leverage available resources, and consider professional advice to ensure that your tax obligations are met accurately and efficiently in every city you call home.
About Tabitha Regan
Tabitha Regan is the Founder and CEO of LittleOwl CPA. She is a Certified Public Accountant, Certified Financial Planner™ and Personal Financial Specialist. In her 16+ year career span, she has developed an expertise in the specific needs of small businesses and busy professionals with accounting, tax and advisory services.
