Quick Answer
File your resident state return first, then claim a credit for taxes paid to other states using your nonresident state return as proof. The credit typically covers 85-100% of taxes paid to the nonresident state, saving most taxpayers $500-2,000 annually in double taxation.
Best Answer
Sarah Chen, Payroll Tax Analyst
Best for remote employees who live in one state but work for a company in another state, creating dual tax obligations
Understanding the other state tax credit
The other state tax credit eliminates double taxation when you owe income taxes to multiple states. This commonly happens when you live in one state but earn income in another — either through remote work, temporary assignments, or cross-border employment.
How it works: You pay full taxes to both states first, then your resident state gives you a credit for taxes paid to the nonresident state. The credit is typically dollar-for-dollar up to the amount you would owe your resident state on that same income.
Step-by-step process for claiming the credit
Step 1: File your nonresident state return first and pay any taxes owed. This creates the documentation you need for the credit.
Step 2: File your resident state return and claim the other state tax credit using Schedule CR or equivalent form.
Step 3: Attach a copy of your nonresident state return and payment confirmation as proof of taxes paid.
Example: New York resident working remotely for California company
Let's walk through a real scenario with $90,000 in remote work income:
California (nonresident) filing:
New York (resident) filing:
Total taxes paid: $4,200 ($3,150 to CA + $1,050 to NY)
Without the credit, you'd pay: $7,350 ($3,150 + $4,200)
Credit saves you: $3,150 in double taxation
Credit calculation and limitations
Key factors that affect your credit
Special situations requiring extra attention
Multiple other states: If you paid taxes to several states, you can claim credits for each, but the total credit can't exceed what you'd owe your resident state.
Partial year residents: If you moved mid-year, the credit calculation becomes more complex and may need to be prorated.
Investment income: Some states don't allow credits for taxes paid on investment income to other states — only wages and business income.
What you should do
1. File nonresident returns first in all states where you had income but don't live
2. Keep detailed records of all state tax payments and returns filed
3. Use our paycheck calculator to estimate if you're withholding enough in your resident state
4. Consider estimated payments if your withholding won't cover both states' tax obligations
Most taxpayers recover 85-100% of double taxation through this credit, but the process requires careful coordination between multiple state filings.
Key takeaway: File nonresident returns first, then claim the credit on your resident return — this typically saves $500-2,000 annually by eliminating double taxation on the same income.
*Sources: According to IRS guidelines and most state tax codes, the credit for taxes paid to other states prevents double taxation while ensuring each state gets its fair share of tax revenue.*
Key Takeaway: File nonresident returns first, then claim the credit on your resident return to eliminate double taxation — typically saving $500-2,000 annually on multi-state income.
Other state tax credit calculation scenarios
| Scenario | Credit Amount | Formula |
|---|---|---|
| Other state tax is lower | Full amount paid to other state | Dollar-for-dollar |
| Other state tax is higher | Limited to resident state's tax | Min(other_state_paid, resident_state_owed) |
| Multiple other states | Sum of all qualifying payments | Separate calculation per state |
| Partial year resident | Prorated based on residency period | Credit × (resident_months/12) |
More Perspectives
Sarah Chen, Payroll Tax Analyst
Best for people who moved during the tax year and need to understand how the credit works for part-year residents
Part-year resident credit complications
When you move mid-year, claiming the other state tax credit becomes more complex because you're typically filing part-year resident returns in both states, not a simple resident/nonresident combination.
Example: Virginia to North Carolina move in June
Virginia (January-May income: $35,000)
North Carolina (June-December income: $50,000)
Key insight: With part-year residency, there's typically no double taxation because the income was earned in different states during different periods. The credit usually doesn't apply unless you had income in your former state after you moved.
When the credit does apply for movers
You might still need the credit if:
The calculation requires careful attention to which income was earned where and when.
Key Takeaway: Recent movers usually don't need the other state tax credit because they're filing part-year returns for different income periods — the credit mainly applies when income overlaps between states.
Sarah Chen, Payroll Tax Analyst
Best for people with jobs in different states who need to coordinate credits across multiple income sources
Multiple jobs create multiple credit opportunities
With jobs in different states, you might owe nonresident taxes to several states while being a resident of just one. This creates opportunities for multiple other state tax credits on your resident return.
Example: Living in Pennsylvania with jobs in multiple states
Job 1: $45,000 in New Jersey → NJ nonresident tax: $1,800
Job 2: $35,000 in Delaware → DE nonresident tax: $1,400
Total other state taxes paid: $3,200
Pennsylvania resident return:
Strategic considerations
Multiple jobs across states require careful tax planning to maximize the benefit of available credits while minimizing overall tax liability.
Key Takeaway: Multiple jobs in different states can generate multiple tax credits, but the total credit is limited to what you owe your resident state — excess credits are typically lost.
Sources
- IRS Publication 17 — Your Federal Income Tax - includes guidance on state tax credits
Reviewed by Sarah Chen, Payroll Tax Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.