Many Americans struggle to meet the April 15th deadline for filing their taxes. But 43 states require their residents to file a state income tax return. So, getting the 1040 signed and postmarked by the middle of April is really only half of the battle in fulfilling the average American’s tax responsibility.
Navigating the changing tax codes of each state can be confusing. We’ve put together some information taxpayers should have about filing their state income tax return. Simple mistakes can be very costly so it is crucial to be well informed.
Your State’s Tax Code May Not Match The Federal Government’s Tax Code
It would seem logical that the numbers from your federal tax return could be plugged into the state tax return to produce the amount of tax owed to either the state or the taxpayer. This simple intuitive system was employed by some states for many years, simply levying a fixed percentage of the federal taxable income.
In the current tax situation, many states impose different rules for determining what qualifies as taxable income. Allowable exemptions and applicable credits vary wildly from state to state and many bear little resemblance to the federal government’s definitions and terms.
Successful completing your federal tax return does not prepare you to complete your state income tax return. Be sure to leave yourself plenty of time to approach the filing of your state taxes as a brand new project. Don’t depend on your federal return to ease this process or you will find yourself scrambling to meet your tax deadline.
You Might Have To File More Than One State Return
People who move to a new state will almost always have to file two state income tax returns. When this happens the income must be divided among the states according to their tax code’s regulations on residency and work performed. The taxpayer will have responsibilities in both states to pay taxes.
Americans who reside close enough to their state’s border to live in one state and work in another will have tax obligations in both states. In most states such a taxpayer would have to pay tax on the income they generated where they worked and then pay tax on all of their income in the state they reside in, receiving a credit for the tax they paid the other state. Some states have made reciprocal agreements with one another that simplify tax laws but conditions apply.
If You Need An Extension, You Probably Have To Apply For One In Your State
This is another place where it seems logical that filing federally should cover state but that is not the case. Although the process for filing an extension for your federal tax return is fairly painless and can be completed electronically it does not automatically mean you receive an extension of your state income tax return.
The federal government offers a 6-month extension with no questions asked if the appropriate extension form is filled. Most states operate the same way. They require a separate form be filed in order to qualify for an extension on your state income tax return but they grant the extensions as a matter of practice.
To make tax paying even worse some localities such as Baltimore and Chicago require taxpayers to file a local income tax return as well. It is best to consult a tax professional to confirm that you have a good understanding of what tax forms must be filed and to whom.
When considering your tax situation be sure to evaluate the requirements of the state in which you reside. Never assume that filing your federal taxes will be the only responsibility you must meet as a taxpayer. 43 states also require the filing of a state income tax return and many localities also require a local return. The tax code that governs your federal, state, and local returns probably varies greatly. Be sure to leave plenty of time to approach each return as a brand new exercise so that you can afford costly fines and penalties.
It is not uncommon to be required to file multiple state returns. If you conduct business in a different state than you reside in or move to a new state in the middle of a tax year you will probably have to file more than one state income tax return. Be sure that you understand the laws pertaining to your personal tax liability.
Filing for a federal extension will not translate to an automatic return on your state taxes. Be sure that you file an extension with your state as well if you also need more time to settle your state tax debt. If you do not file your separate state tax extension you may face penalties and fines.