Multi state tax filing: file taxes in two states, tax software for multiple states

Do I have to file taxes in two states?

You file in two states when two states each have a claim on your income. That usually happens for one of four reasons: you moved across a state line during the year, you live in one state and work in another, you worked temporarily in a second state, or you own income-producing property somewhere you do not live. Which return each state wants depends on your residency status there, and the three statuses are not interchangeable.

The trap in that table is the resident row. Your resident state taxes everything, including the wages you earned in the other state. That is not an error and it is not double taxation on its own, because the credit described in the next section removes the overlap. But it is why your resident return will show a bigger income figure than your W-2 for that state alone.

A few situations that create a second return people do not expect: working remotely for a few months from a relative's house in another state, a signing bonus paid by an employer in a state you have since left, rental income from a property in your old state, and income from a partnership or S corporation that operates elsewhere. Two states with no income tax at all, or a move between two of the eight no-tax states, means no state return either way. The state tax filing pillar lists which states tax income and which do not.

Can two states tax the same income?

Briefly, yes, and then one of them gives it back. Both states can legally reach the same dollars, but the US Supreme Court held in Comptroller of the Treasury of Maryland v. Wynne (2015) that a state must relieve the resulting double taxation. Every state that taxes income offers a credit for income tax paid to another state on its resident return, and that credit is what makes you whole.

The order matters. You prepare the nonresident return first, because it produces the tax figure that becomes the credit on your resident return. Do it the other way around and you have nothing to enter in the credit box.

A worked example makes the size of the credit clear. Say you live in New Jersey, commute into New York, and earned $90,000 of New York wages. New York taxes that $90,000 as a nonresident and produces, for illustration, $4,600 of New York tax. New Jersey then taxes your full income as a resident and computes, say, $3,900 of New Jersey tax on that same $90,000 slice. Your New Jersey credit is limited to the lesser of the two, so you claim $3,900 and your New Jersey liability on that income drops to zero. You do not get the extra $700 back from New Jersey. That is the general shape of it: the credit is capped at what your home state would have charged, so when you work in a higher-tax state you end up paying the higher of the two rates overall, not both rates stacked.

Part-year movers work differently. Neither state taxes the whole year, so there is usually little or no overlap and little or no credit. You split the income by the date you moved instead. Keep the pay stubs that straddle the move date, because most part-year disputes come down to which state a particular paycheck belonged to.

Which states have reciprocity agreements, and what do they change?

A reciprocity agreement is a deal between two neighboring states to tax cross-border commuters only where they live. If your pair of states has one, the second return disappears. You give your employer the work state's exemption certificate, it stops withholding that state's tax, and you file one resident return at home.

There are 30 reciprocal agreements in force across 16 states plus the District of Columbia. The densest cluster is in the Midwest and mid-Atlantic: Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin, Maryland, Virginia, West Virginia and DC account for most of them. New Jersey and Pennsylvania have the best-known East Coast pair. Delaware has none at all, which is why Delaware commuters always file two returns. The full pairing table is on the state tax filing pillar page.

Two cautions on reciprocity. It generally covers wages and salary only, so business profit, rental income and capital gains from the other state can still create a nonresident return even when a reciprocity agreement exists. And the exemption is not automatic: if your employer withheld the work state's tax anyway, you have to file a nonresident return there purely to get the withholding refunded.

Do I pay state taxes where I live or where I work if I work remotely?

The default rule is that wages are sourced to the state where you physically do the work. Work from your kitchen table in Ohio for a company headquartered in Texas, and Ohio taxes those wages while Texas has no claim, because Texas has no income tax at all. Your home state taxes you as a resident either way.

Eight states break that default with a convenience of the employer rule. If your employer has an office in that state and you work remotely from another state for your own convenience rather than because the employer requires it, those wages are still treated as earned in the employer's state. New York is the most aggressive about enforcing it.

Source: Tax Foundation, State Individual Income Taxes on Nonresidents. Arkansas briefly adopted a convenience rule by regulation during the pandemic and its legislature repealed it in 2021. Massachusetts used a temporary pandemic sourcing rule that has since lapsed. Neither applies to a 2025 return.

The rule bites hardest when you live in a state with no income tax. A Florida resident working remotely for a New York employer owes New York tax on those wages and has no home-state return to claim a credit against, so there is no offset at all. Where both states tax income, your resident state's credit usually absorbs most of the hit. If this is your situation, the New York tax filing, Pennsylvania tax filing, New Jersey tax filing and Connecticut tax filing pages cover each state's forms and rates, and the convenience of the employer rule is explained in full detail there.

How much does tax software for multiple states cost, and how TaxFile handles it

Multi-state is where per-state pricing starts to matter, because the second and third state returns are pure add-on cost on every consumer tax product. TaxFile charges a flat $19 per state return on top of your federal plan.

There is no free tier. What you get for the multi-state part is the ordering and allocation handled for you:

• Upload once. Your W-2s and 1099s are read once, and every state return is built from the same figures instead of being keyed in again.
• Residency sorted per state. It works out whether each state wants a resident, part-year or nonresident return from your dates and income sources.
• Nonresident first. The returns are prepared in the order the credit requires, so the tax paid to the other state actually lands in the credit box on your resident return.
• Income allocated. Wages and 1099 income are split by state and by date, which is the step that usually goes wrong when people file two state returns by hand.
• You approve, then it files. Nothing is e-filed until you review and approve every line, through an authorized IRS e-file provider.

If your multi-state income is contract or freelance work, self-employed tax filing covers the Schedule C and Schedule SE side, and Schedule C software walks through the business return. Filing taxes in two states answers the question end to end, and how much you can make without paying taxes covers the filing thresholds that decide whether a small amount of out-of-state income needs a return at all. TaxFile does not e-file Form 4868 federal extensions or prepare amended returns, and does not handle capital gains on Schedule D, rental income on Schedule E, or cryptocurrency. TaxFile is self-prepared tax software and does not provide personalized tax advice, and no refund amount is guaranteed.