Filing Taxes in Two States: Why This Happens and Who It Applies To

For the longest time, I thought I only had to pay taxes based on where I lived. If I spent the whole year in Maryland, I’d only owe Maryland taxes, right?  

Wrong.  

You’re not alone if you thought the same. It’s a common misconception.  

Many states impose state income taxes. That means, depending on your income-earning circumstances, you could owe income tax in more than one state. This most commonly comes up if you work remotely, move during the year, or earn income in another state. Filing income tax in multiple states can be complex, but we’re here to help. This article breaks down why two states might tax the same income and how TurboTax simplifies multi-state filing—helping you avoid overpaying while ensuring accuracy.

When do you have to file taxes in two or more states?

Imagine you’re a freelancer with clients in multiple states, earning income across state lines. Or perhaps you moved to a new state in the past year.  

In these situations, you might owe state taxes in more than one place. But don’t worry. While managing your taxes across state lines can be confusing, it’s more common than you might think. 
 

Let’s look more closely at the various scenarios that might require you to file taxes in multiple states. 

You moved to a new state or lived in multiple states during the year

Relocating across state lines during the tax year is a common reason for paying taxes in two states. You’ll likely need to file part-year resident returns for both if you established residency in a new state but earned income in your old state. 

Most states tax only the income earned while you were a resident. However, some may have different rules, such as taxing all income once you meet their residency criteria—which can be based on the number of days you lived there or other factors. This is also an important consideration for people who have homes in more than one state. 

To accurately report your income, you’ll need to file part-year resident tax returns for each state you lived in during the tax year. TurboTax will guide you through preparing the correct part-year resident return forms based on your situation.

You live in one state but work in another

If you reside in one state and work in another, you may need to file tax returns in both states. Typically, your home state taxes all your income, while your work state taxes only the income earned within its borders.  

However, each state has its own rules for taxing nonresidents. For example, some states: 

• Impose a tax filing requirement based on the number of days you spend working there.
• Enforce a “first-day” rule, meaning your tax liability begins on your first day of work in that state. 
• Set a minimum dollar threshold, which could be as little as $300 in income earned. 

You should also be aware of the states that have reciprocal agreements. These states allow residents to pay taxes only in their home state, avoiding double taxation. For example, if you work in Virginia but live in Maryland, you’ll pay taxes only to Maryland. To avoid withholding in your work state, you may need to file an exemption form (e.g., Form VA-4 for Virginia). 

If your home and work states don’t have a reciprocal agreement, you’ll typically file a nonresident tax return in your work state and a resident tax return in your home state. Usually, states offer a tax credit for taxes paid to other states, reducing double taxation. 

Related: How to file a nonresident state return in TurboTax

You conducted business in multiple states

You don’t have to physically work in another state to owe taxes there. Simply earning income sourced from a different state can trigger a tax liability.  

Here are some common scenarios where this might apply: 

• You own rental property in another state. 
• You own a profit-generating farm in another state. 
• You have an interest in a partnership or an S corporation located in another state. 
• You receive income from a trust or estate based in another state.

How to avoid double taxation

One of the biggest concerns when filing in multiple states is the risk of paying taxes twice on the same income. Fortunately, most states provide ways to avoid double taxation. 

• Claim a tax credit: Many states offer a tax credit for income taxes paid to another state. If you’re required to file in both your home and work states, your home state will typically allow you to take a credit for the taxes paid to your work state, reducing your total tax liability. 
• Properly apportion income: When filing multiple state returns, ensure your income is correctly apportioned between states. Your work state will generally tax only the earnings sourced there, while your home state taxes all income. Carefully report only the income subject to tax in each state to prevent overpayment.

How to file taxes in multiple states

If you moved to a new state or earned income across state lines, TurboTax makes filing taxes in multiple states simple. We’ll guide you through the process—from identifying your filing needs to making sure you pay only what you owe. 

Whether you file with the help of a Full Service Live expert or on your own, TurboTax guides you every step of the way. We can help by: 

• Determining your multi-state filing needs. 
• Providing step-by-step guidance to maximize tax credits and minimize double taxation. 
• Ensuring the accuracy and compliance of your tax filings so that you pay only what you owe and claim all eligible credits.