Liability in 2 states

[Donna1957]

I live in RI but work in MA.  Who am I filing with?  Am I being double taxed?  So far, it’s looking like I owe RI a ton of $

[DianeW777 · Accepted solution]

You are filing with both states, one as a resident and the other as a nonresident.  Prepare your nonresident state first. There will not be double tax however review the details below to understand how it works for your situation.

 Rhode Island (RI) and Massachusetts (MA) do not have a reciprocal tax agreement. As a result, if you live in one state and work in the other, you are generally required to file tax returns in both states, though you can usually claim a credit in your home state for taxes paid to the other.

State Returns - Your resident state requires you to include all worldwide income. Assume both states require income tax returns to be filed: 

1. Report the income on each state return that is from the nonresident state
2. Report it on your resident state and receive credit for taxes paid to another state.

Credit for taxes paid to another state is allowed by a resident state when the same income is being taxed to another state.  Your resident state does not want you to pay tax twice on the same income. The credit that is allowed will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

In most cases complete your nonresident state first.

[Hal_Al]

The general rule is (and it applies, in your case): your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state. You will have to file a non resident MA state return and pay MA tax on the income earned there.. You will also file a RI full year resident return and calculate tax on ALL your income. RI will give you a credit, or partial credit, for the tax you pay MA. So, there will be little or no double taxation, but you have the cost and hassle of filing two state returns. Do the nonresident state return first.   Doing the returns in the correct sequence insures that your RI return will include the credit for the tax you pay to MA.