Working in multiple states

[horseshot]

Taxpayer, resident of il working in il, fl and mi. If other than il which collects state withholding and other states refuse to collect il tax-would taxpayer than file estimated tax for il? If other staes withhold their state tax does taxpayer file that states return and than take credit on the il return for tax paid other states?

[Gary2]

FL has not state income tax. It's worth checking to see whether MI and IL have a reciprocity agreement, which will affect the answer. It's might also be worth checking if any de minimum rules apply.

In the absence of a reciprocity agreement, the state where the work is done normally has first dibs, while the state of residency will normally provide some sort of credit for the tax paid to the other state. A tax return will be due to both states, regardless of whether or not there was any withholding.

Depending on the numbers, estimated taxes may or may not be required or advisable. Alternatively, one might just increase the amount of withholding on other income sources, which has the advantage of avoiding the timing requirements for estimated taxes.

Finally, be sure to check each state's residency rules. Some states use a rigid "183 days and you're ours" rule. That seems unlikely to be an issue in this case, but it's important to know about it.

[horseshot]

horseshot

If FL has no state income tax, than woul not all the income earned in FL is taxed by IL?

[Gary2]

If FL has no state income tax, than woul not all the income earned in FL is taxed by IL?

Of course. I'm assuming there is no question about relinquishing IL residency or domicile. (I'm also assuming that the individual is not self-employed, since I'm not familiar with FL business taxes, but that's really a separate issue.)

But one key to understanding is that even if FL had an income tax, it would still all be taxed by IL. As far as I know, there is no state that allows you to exclude income merely because it is subject to income tax by another state. You must calculate the initial tax on the full amount of income, and only then take a non-refundable credit for taxes paid to the other jurisdiction. This is significant in states with a graduated income tax, because the out-of-state income will still affect the tax bracket. It also helps to understand why the net result is generally paying the higher of the two state taxes, though not necessarily all to that state.