Living in Two Different States

• If you are like a "snow bird"--heading south every winter--you will be living in two states during the year. Even though you only consider one of the states as your home, the taxing authority for the other state is not bound by your considerations. Depending upon how you conduct your affairs, you may find that you will have to file and pay income taxes in both states or, in a worst case scenario, pay income tax in one state when the state you consider you home state does not have an income tax.
  
  

Establishing Your Domicile State

• Even if you own a home in two different states, you can only be domiciled in one state. But simply calling a particular state your domicile is not enough to make it so. Every state's taxing authority can dispute your claim of domicile by examining how you live and conduct your financial affairs during the year. Although living in one state more days than in other (the "183 day rule") is a helpful guide, issues that will also carry significance are what state issued your driver's license, where you are registered to vote, state of vehicle registration and where you maintain bank accounts.
  
  

Living in One State, Working in Another

• A relatively common occurrence is to live in one state and work in another. As a general rule, you will have state withholding taxes taken from your paycheck in the state where you work and you will be expected to file a non-resident income tax return. Your state of residence will also expect you to pay income tax as a resident of that state. Although you will probably be able to take credits on your respective returns for paying taxes in another state, you will have the burden of filing two tax returns and paying more state taxes.
  
  

Reciprocity Agreements Between States

• Some states relieve you of the burden and expense of having to file two state tax returns when you live in one state and work in another by way of a "reciprocity agreement." If the states you live and work in have such an agreement, then you will only have to file a state tax return in the state where you live. For example, Minnesota has reciprocity agreements with Wisconsin, Michigan and North Dakota. Iowa and Illinois also have a reciprocity agreement, as do eight other states and the District of Columbia.
  
  

Working in Two Different States

• If you earned income in two different states during the year, you will have to file a tax return in each state. This is regardless of whether you earn income in different states as a regular part of your profession, or just because you moved from one state to another during the year.