If I work in one state but live across the state line. Do I pay income taxes for the state I live in or work?

Answer 1

You income is subject to income tax LAWS in both states. If both states have income taxes, you will have to file tax returns in both states. Most states that have income taxes allow residents to claim a credit for taxes paid to another state for income earned in the other state. Ignore the comments about reciprocal agreements. The instruction for your home states tax return will explain what you need to know whether such an agreement exists or not. From my reading of several state tax forms, I doubt any such agreement exists or is required to claim the credit.

Answer 2

If the two states have a reciprocity agreement between them you will only need to file in your home state. Otherwise you'll have to file in both states. You'll file a non-resident return in the state where you work, listing only the income earned in that state. You'll then file a resident return in your home state, listing all income from all sources and take a credit for the taxes paid in the state where you work. This has the effect of taxing the income earned out of state at the higher of the two states' rates.

Answer 3

I couldn't find a reciprocal agreement between the two states. 1. KEEP all documentation that you worked in to states. Your employer should have withheld proportionately, but didn't and you may have to prove this to Illinois. 2. You file the non-resident Illinois return first. You show that 60% of the income is form Illinois and pay taxes and get a refund on the excess withholding. 3. You then file the resident return for Indiana. You will owe tax to Indiana. You will get a credit for the tax you actually pay to Illinois. If the amount you owe Indiana is substantial, you may owe an estimated tax penalty for not having it withheld or paid in manually by you during the year. Here's the quote from the IL return instructions: "Note. If the Illinois wages as shown on your W-2 are incorrect, you must attach a letter from your employer, on company letterhead, stating the correct amount of Illinois wages and Illinois Income Tax withheld. We will not accept a letter from you or your tax preparer." If your employer decides they won't give you the letter, then you must do as Boston says.

Answer 4

I did that for years. I worked in PA but lived in DE. PA has an agreementwith a lot of states that you only have to file where you live (a reciprocity agreement) but not with DE. I'd have to file a PA non-resident form and then file a DE resident form. Luckily, DE allowed a credit for what I paid to PA, but not the municipal portion, but I always ended up owing DE money.

Answer 5

It depends on the state and what other income you may have. In most cases you may need to file a return in both states.