Working in one state while my family lives and works in another

[Dan Oliver]

I am thinking about accepting a job offer out of state.  My family and I live in Arizona and my wife works in AZ as a teacher.  I am considering a job in New Mexico where I would stay in an apartment and travel home to AZ as many weekends as I can.  She makes considerably less than I would at this new position, and NM has much higher state taxes than AZ.  I am trying to figure out the tax implications of 'Married Filing Jointly' if I accept the job in NM.  Paying higher taxes in NM will affect what I am willing to accept for the job offer because I do not want to accept too little and then have state taxes hurt my bottom line.  What is the best approach for working this situation?  Would being in AZ more than half the days of the year help me out?  Is there a calculator online that I could use to enter income scenarios for my wife and I while she works & lives in AZ and I work in NM but travel home?  Are there any living arrangements or filing details that I can consider to limit my tax burden?  I need to see what the absolute lowest offer is that I can accept so that I will not be surprised by the taxes at the end of 2024 &/or 2025.

[NCperson]

@Dan Oliver for federal tax purposes, it simply doesn't matter what state you or your spouse work in; it is all the same

For state purposes is where it matters. 

You pay taxes where you work OR where you live.

1) for the days you are working in NM, you would owe the state of NM taxes on that income.  You would file a NM non-residential income tax form

2) then you would file a AZ resident income tax form and report ALL your income (and your wife's) and interest, dividends - everything! On that form, once the tax liability is calculated, AZ would give you a credit for taxes paid to NM.  Normally, it is the lower of what was paid to NM or what the tax would have been if it had been paid to AZ (so if the AZ taxes are lower, the credit is based on AZ tax tables; if the NM taxes are lower, the credit is based on NM tax tables).   

You would not be taxed on the same dollar of income in both states

I am not aware of a calculator, but certainly if NM has higher income taxes than AZ, the more days you work in AZ the less the collective tax to the two states is going to be. 

[rjs]

@Dan Oliver 

Your proposed plan to spend most of your time in New Mexico creates a complication. Since different states have different definitions of a resident for income tax purposes, it is possible to be considered a resident of more than one state at the same time. There is also a concept called domicile, which is not the same as residence. You can have only one domicile.

As long as your family remains in Arizona, and you consider that your home, your domicile is in Arizona. Arizona considers you a resident for income tax purposes if your domicile is in Arizona.

But New Mexico considers you a resident for income tax purposes if either "Your domicile was in New Mexico for the entire year or You were physically present in New Mexico for a total of 185 days or more during the tax year, regardless of your domicile." From your description of the arrangement that you are considering, it seems that you would be physically present in New Mexico for at least 185 days during the year. That would make you a resident of New Mexico for income tax purposes.

As I said, it is possible to be considered a resident of both states at the same time, and it looks like you would be in that situation. That means you would have to file resident tax returns in both states. I don't know how the credit for tax paid to another state works if you are a resident of both states. The fact that your wife is a resident of only Arizona might further complicate the situation. You should consult a local tax professional to find out how your plan would be handled.

You can find the definitions of a resident in the tax return instructions for each state, which you can download from the following links. The instructions also discuss domicile.

Arizona Form 140 Booklet
See "Determining Residency Status" on page 2 (page 8 of the PDF).

New Mexico PIT-1 Instructions

I can't find a direct link to the file. Go to the Forms & Publications page and click Income Taxes > Current Year Tax Forms > Personal Income Tax > Personal Income Tax Return Forms. Then click "Open File" for the PIT-1 instructions.
See "Definitions" on page PIT-1-4 (page 4 of the PDF)

[TomD8]

@rjs --

Page 3 of the instructions for Arizona Form 309, Credit for Taxes Paid to Another State or Country, has a full section on Dual Residency.   It states:

You may be eligible to claim the credit if you are a full-year Arizona resident filing Arizona Form 140 and you are also considered to be a resident of another state under the laws of that other state.

https://azdor.gov/forms/tax-credits-forms/credit-taxes-paid-another-state-or-country

I believe this would apply in the OP's situation.

[rjs]

@TomD8 

Yes, I agree that that does apply to the OP's situation. But it does not completely solve the double taxation problem, since he must file as a resident in both states.

Note that the AZ Form 309 instructions say "The credit is allowed only for taxes imposed on income that would have been sourced to the other state if the Arizona resident had filed as a nonresident to the other state." That means the income that he earns for working in New Mexico. But since he has to file as a resident of both states, the credit would not apply to any other income that would not be sourced to New Mexico if he were a nonresident, such as investment income. Any such income would still be taxed by both states, possibly with no compensating credit.

The situation is further complicated by the fact that his wife also works, but she is a resident of only Arizona, not New Mexico. Since I'm not familiar with the tax laws of either state, I'm not going to try to figure out how that would be handled. I still think that @Dan Oliver needs to consult with a local tax professional before deciding whether to proceed with his plan.

[TomD8]

But then there's this:

On May 18, 2015, the U.S. Supreme Court answered this question in Comptroller of the Treasury of Maryland v. Wynne et ux [575 U. S. __ (2015)], ruling in a 5-to-4 decision that two states cannot tax the same income.

https://www.cpajournal.com/2017/10/26/icymi-supreme-court-rules-two-states-may-not-tax-income/

AZ must give the taxpayer a credit for the taxes paid to NM on the dollars that are also taxed by AZ.