Remote work made it easy to live in one state and work for a company based in another. It also made state taxes more complicated. Your federal return looks the same wherever you sit at your desk, but your state returns depend on where you live, where you do the work and the rules of each state involved.
This guide explains the main ideas so you can spot when you might owe more than one state, and how to avoid paying tax twice on the same income.
Resident or nonresident: the starting point
Most states with an income tax tax their residents on all of their income, wherever it's earned. They tax nonresidents only on income from sources in that state, such as wages for work physically performed there or rent from property located there.
Each state sets its own residency rules, and you can be a resident of more than one state at once. New York is a good example. You're a New York resident if your domicile is there, meaning the permanent home you intend to return to. You can also be a "statutory resident" if you keep a permanent place of abode in New York for substantially all of the year and spend 184 days or more in the state during the year.
If you split time between two homes, keep a simple day-by-day log of where you were. It's often the best evidence you'll have if a state asks.
Credits for taxes paid to another state
What happens when your home state taxes all your income and another state taxes the wages you earned there? In most cases, your home state gives you a credit for the tax you paid to the other state, so the same dollars aren't fully taxed twice.
New Jersey's version shows how this typically works. New Jersey residents can claim a credit for income tax paid to another jurisdiction on income that New Jersey also taxes, using Schedule NJ-COJ. The credit can't be more than the New Jersey tax you would have paid on that income.
That limit matters. Say the other state's tax on your wages is $3,000, but your home state would charge only $2,000 on the same income. Your credit is generally capped at $2,000, so you'd still pay $3,000 in total. You'd simply avoid paying the full $5,000 that two separate taxes would add up to.
The "convenience of the employer" rule
Normally, wages are sourced to the state where you physically do the work. A few states take a different approach for remote employees, and New York's rule is the best known.
Under New York's guidance, if you're a nonresident whose primary office is in New York State, the days you telecommute are treated as days worked in New York. The exception is when your employer has established a "bona fide employer office" at your telecommuting location. New York's test looks at several factors, such as whether the employer provides the space, lists the address on business materials or reimburses home office costs. Simply choosing to work from home doesn't create a bona fide employer office.
Here's what that can mean. Say you live in another state, your assigned office is in Manhattan and you work from home three days a week by choice. New York may treat all of those days as New York workdays, and tax that wage income as a nonresident. Whether your home state then gives you a credit for that tax depends on its own rules.
Other states have their own versions of this rule, or apply different tests. If your employer is based in a state other than the one you live in, check both states' rules before assuming where your wages are taxed.
Reciprocity agreements
Some neighboring states have reciprocity agreements. Under these, a resident of one state who works in the other pays wage tax only to their home state.
Pennsylvania and New Jersey have one. Wages earned by a Pennsylvania resident working in New Jersey aren't subject to New Jersey income tax, and the reverse is also true. To stop the wrong state from withholding, a Pennsylvania resident gives their employer Form NJ-165, and a New Jersey resident gives their employer Form REV-419EX.
Reciprocity agreements usually cover employee compensation only. In the Pennsylvania–New Jersey agreement, self-employment income and other income, such as a gain from selling property, aren't covered. If you're a contractor rather than an employee, don't assume reciprocity applies to you.
Moving to a new state mid-year
If you move during the year, you'll usually file a part-year resident return in each state that has an income tax. Each state taxes what you earned while you lived there, plus any income sourced to it during the rest of the year. New York, for example, splits a part-year resident's income: part is taxed under resident rules and the rest under nonresident rules.
A few habits make a move much easier at tax time:
- Write down your move date and keep proof, such as a lease, closing documents or utility start dates.
- Update your address with your employer and your payroll withholding state on the day you move.
- Change your driver's license, voter registration and vehicle registration promptly. These help show where your domicile is.
- Keep pay stubs that show how much was earned before and after the move.
Common mistakes to avoid
- Relying on your W-2's state boxes. Employers sometimes withhold for the wrong state, especially after a move. Withholding doesn't decide what you owe; the states' rules do.
- Forgetting the nonresident return. If a state taxes your wages, you may need to file there even if all the tax was withheld.
- Skipping the credit. The credit for taxes paid to another state usually isn't automatic. You have to claim it on your resident return.
When it's worth getting help
If you live and work in the same state all year, your state return is usually simple. It's worth having a professional look if you work remotely for an out-of-state employer, moved during the year, have homes in two states or are a contractor working across state lines. Our personal tax preparation team prepares multi-state returns and can check that credits are claimed correctly. If you're self-employed and work from home, also see our guide to the home office deduction. When you're ready, book an appointment.
This article is general information, not advice for your specific situation. State rules change often, so confirm current rules with each state's tax agency.
Sources
- New York State: Filing requirements, residency and telecommuting FAQs
- New York State: Nonresident and part-year resident returns (IT-203)
- New Jersey Division of Taxation: Credit for taxes paid to other jurisdictions
- New Jersey Division of Taxation: PA/NJ Reciprocal Income Tax Agreement
General information, not tax advice. Tax rules change and depend on your situation. Figures are for tax year 2026 unless noted; confirm current amounts at IRS.gov or talk to a Stellar Tax professional before acting.