Understanding Non-Resident Income Tax

If you have employees who work in one state but live in another, they may be subject to non-resident state income tax. Here’s an overview on non-resident income taxes and some tips to help you manage these multi-state tax requirements smoothly.

What is Non Resident Tax? 

A non-resident is someone who does not live in a particular state but still earns income there. Many states impose Non-Resident tax to these cases when employees live in one state but work in or earn income from another state. The state imposes these taxes to ensure they collect tax revenue from people who use state resources (like roads and public services) while working there. 

Example: If you live in New Jersey but commute daily to work in New York, you’re a New Jersey resident and a non-resident of New York. Because you’re earning income in New York, New York may require you to pay state income taxes on those earnings, even though you don’t live there.

Types of Non-Residents 

• Daily Commuters: People who live in one state but work in another.
• Remote Workers: People working remotely for an out-of-state employer (some states consider this income taxable).
• Seasonal Workers: Those who temporarily work in a state during part of the year, like for summer jobs or seasonal industries.

States that Impose Tax on Non -Residents 

The following states require non-residents to pay income tax on wages they earn within state borders:

1. Alabama
2. Arizona
3. Arkansas
4. California
5. Colorado
6. Connecticut
7. Delaware
8. Georgia
9. Hawaii
10. Idaho
11. Illinois
12. Indiana
13. Iowa
14. Kansas
15. Kentucky
16. Louisiana
17. Maine
18. Maryland
19. Massachusetts
20. Michigan
21. Minnesota
22. Mississippi
23. Missouri
24. Montana
25. Nebraska
26. New Jersey
27. New Mexico
28. New York
29. North Carolina
30. North Dakota
31. Ohio
32. Oklahoma
33. Oregon
34. Pennsylvania
35. Rhode Island
36. South Carolina
37. Utah
38. Vermont
39. Virginia
40. West Virginia
41. Wisconsin

Exclusions and Special Situations

No Income Tax States: Seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—don’t have a personal income tax, so they won’t tax non-resident wages either.

Special Cases: New Hampshire and Tennessee only tax dividend and interest income, not wages. This means if you earn wages in either of these states, you generally won’t owe state income tax there.

Reciprocity Agreements 

Several states have reciprocity agreements with neighboring states, allowing residents to only pay state income taxes where they live instead of where they work. Some of these states include:

• Illinois (with Indiana, Iowa, Kentucky, Michigan, and Wisconsin)
• Indiana (with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin)
• Virginia (with Maryland, West Virginia, and Washington, D.C.)

Check to see if your state has a reciprocity agreement with your work state. It can save you from double taxation and simplify your tax filing.

What if your employee is working remotely? 

If you’re employee is working remotely for your company from another state, the rules can be trickier. Some states still consider this as "earning income in their state," while others don’t. Double-check with the state’s Department of Revenue or consult a tax professional to understand your specific obligations.

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