Understanding State Income Tax
You may have to pay income tax to more than one state, but you can’t be taxed twice on the same money.
Avoiding Double Taxation
Double taxation occurs when income is taxed at both the corporate and personal level.
Taxation Across Different States
Federal law prevents two states from taxing the same income. If you live in one state and work in another, only one state can tax you.
- W-2 includes states where income tax was deducted and where not deducted.
- If you have income in more than one state or moved to a different state, filing software will prompt you to file returns in those states.
- Owning businesses or rental properties across state lines can create intricate tax situations.
Taxation for Residents and Non-Residents
- Residents pay state taxes on all income, regardless of source.
- Non-residents only pay taxes on income earned within that state.
Special Cases
- UK residents can earn a tax-free personal allowance, potentially avoiding double tax.
- Utah dealers do not pay sales tax to Utah on out-of-state vehicle sales.
Handling Tax Filing
- Most states have an allocation schedule for days worked in-state and out-of-state, causing income to not be taxed in each state.
- You may have to file more than one return when living in one state and working in another.