Taxes when you work in one state but live in another.

June --

I have been a mechanical designer for one year. I have been working in Texas for the past 8 months. Texas has no state income tax. My residence of record is in Roswell, NM, but I have been renting an apartment here (in Texas).

I have not had any New Mexico income tax withheld from earnings here. Will I still have to pay New Mexico state income taxes ?

David


Hello David,

Yes, you must pay New Mexico.

Regardless of where you work you must always pay income tax to the state where you live. Of course if your resident state has no income tax, then you pay no income tax where you live.

Typically, you pay income tax to the state where you work and you receive a credit for those taxes paid in the state where you live.

Here's an example of how it works:
You work in state A. Let's call it your work state --non-resident state in tax jargon.
You live in State B. Let's call it your home state -- resident state in tax jargon.
Your total home state income tax is $5,000. That includes tax on your earned income and tax on interest and dividends and stock sales. You paid $4,000 tax to your work state and so you get a credit. So your home state tax is $1,000.

It may not work out dollar for dollar if one state has a different tax rate than the other. And of course, if your work state, like Texas, has no income tax, then you get no credit and so owe NM the entire tax.

Also read this blog post Work in Another State

Best,
June