Nonresident Income Tax Filings by State, 2025
Credits for Taxes Paid to Other States
Individuals who reside in a state with an income tax can claim a credit from their home state for income taxes paid to other states, so while paying income taxes to other states does not necessarily increase an individual’s total state tax liability (this depends on whether the other state has higher rates on that income), it does substantially increase the complexity and costs associated with filing. It is not uncommon for more than one state, who have the right to tax a taxpayer where they live or work, to claim the same portion of their income. Credits for taxes paid in other states are essential to prevent double taxation.
.Mutuality Requirements
In some states with day-based thresholds, those thresholds do not apply to everyone. Currently, four of the six states with day-based filing thresholds–Louisiana, North Dakota, Utah, and West Virginia–have a “mutuality requirement” that extends filing relief only to nonresidents who live in a state that does not levy an individual income tax or that offers a “substantially similar” exclusion. In general, an Indiana resident who works in Utah 20 days or less is not required to submit a Utah nonresident tax return, as Indiana has a similar filing threshold. Since Colorado has no meaningful filing threshold, Colorado residents who work in Utah for even one day are not eligible for Utah’s safe harbor. They must file on the first day. Since “substantially similar exclusion” is not clearly defined in regulations, taxpayers can be left in the dark on whether their own state’s provisions are adequate.
Indiana and Montana, which both have 30-day thresholds, are currently the only two states that have day-based thresholds that apply broadly to nonresidents regardless of which state they hail from. Forgoing mutuality requirements is the simpler and more neutral approach, as doing so relieves compliance burdens for more individuals and businesses and treats nonresidents neutrally, regardless of the decisions made by policymakers in the states in which they reside.
Filing on Day One
In states that require nonresidents to file for a single day of work in the state, the costs of compliance are often much higher than the amount of taxes remitted. In many cases, a taxpayer may owe a small amount of money to a state or even nothing. However, they are still required to file a tax return. This can cost up $59 using popular software. This can add up quickly for those who travel frequently for work, especially those who visit many different states and municipalities while spending only a short time in each.
Additionally, a nonresident’s low- or zero-dollar income tax return can easily cost a state more to process than is remitted with the return. In practice, revenue departments tend to be more concerned with the compliance of high income earners (such athletes and entertainers), than average taxpayers. Revenue departments are often unaware (or unable to prove) that a person worked in a state without filing a tax return unless their employer adjusts the withholding. Ultimately, keeping laws on the books that are unenforceable or are not worth enforcing is bad tax policy, especially to the extent those policies generate little revenue while creating steep compliance burdens for the honest taxpayers who try to comply.
Nonresident Filing and Withholding Thresholds Oftentimes Do Not Match
Within the same state, nonresident filing and withholding thresholds often differ. Nonresident filing and withholding thresholds often do not match
Within the same state, nonresident filing and withholding thresholds often differ. For more information about the nonresident income tax withholding thresholds in each state, please see our nonresident income tax primer. Local Income Taxes?
Adding complexity, 14 states – Alabama, Colorado, Delaware. Indiana, Iowa. Maryland. Michigan. Missouri. New Jersey. New York. Ohio. Oregon. Pennsylvania. West Virginia – have local income taxes which sometimes apply to nonresidents. This increases the cost of compliance, especially for those who spend only a brief time working in a given city or county. Ultimately, more states should consider moving away from local income taxes altogether or avoid applying them to nonresidents (as is the case in Kansas and Kentucky).
Opportunities for Reform
