Border Patrol: Live in One State While Working in Another
In some areas of the country it is more likely that someone lives in one state while working in another. This is most common in cities that are very near state boarders. Living and working in two different states can pose a tax dilemma. It may difficult to determine which state to pay taxes in and where you to report your income.
There are two ways to report your income and it depends on whether or not the state you live in has a reciprocity agreement with the state that you work in. A reciprocity agreement means that you may report your income earned in another state on your state of residency’s tax state tax return.
If you have determined that the state you live in has a reciprocity agreement with the state that you work in, you may be required to fill out a form exempting you from the state you work in state’s tax. Once you fill out this form, the taxes taken out of your income will be from your state of residency
For example, the states of North Dakota and Montana have a reciprocity agreement. If you live in North Dakota and work in Montana, you will need to fill out Form NR-2 Employee Certificate of North Dakota Residence stating that you are a resident of North Dakota. Upon successfully completing this form, the state of Montana will not withhold Montana income tax and the state of North Dakota will withhold income tax on your earnings. You will only need to file a state tax return in North Dakota.
However, if you live in Georgia and work in South Carolina you will need to report your income differently because these states do not have a reciprocity agreement. You must report your earnings in both states by filing a non-resident tax return in South Carolina and a resident tax return in Georgia. You will receive a credit on your Georgia tax return for the taxes paid to South Carolina.
As of August 2013 the following states have reciprocity agreements: