Interstate Employees

The snow is coming to New England this afternoon.  Actually it's hitting a lot of the east coast. This seems like the perfect time to give a great tax tip to those employees who live in one state and work in another state.  The rule about which state(s) get to tax you is pretty simple. If you live in a state, they get to tax everything no matter where you earn it. OK, you say, but then if I work in another state, they get to tax it too? Well, yes. The state where you actually do the work gets to tax the income earned in their state. No way! That would be double taxation! Yes it would. That's why the state you live in gives you a credit for the taxes you pay to the other state. That eliminates the double taxation issue. But that's not what this entry is really about.

APPORTION YOUR INCOME

Suppose, for example, that you live in a state like New Hampshire, where there is no personal income tax on wages. If you work in Massachusetts, you would simply pay Massachusetts tax on the income earned in Massachusetts. If you are a full-time employee, your W-2 will most likely show all of your income earned in Massachusetts. Let's suppose you have clients that you service in New Hampshire, Vermont and Maine. Or, like today, since the blizzard is coming, you decide to work from home. At the end of the year, you would add up all of the days you worked outside of Massachusetts and come up with a percentage of days you worked outside Massachusetts. Very simply, you would then apply this percentage to your wages and exclude that amount of income from your Massachusetts taxes. This also works really well if you live in Connecticut or New Jersey and work in New York. You need to keep a calendar to track your days, but you could save hundreds of dollars in state taxes.