When it comes to financial planning, taxes are always a top concern. They can become even more tricky when someone lives in one state but works in another. Do you need to file a state return? What income gets reported where? If you're one of the many who live in NH but work in MA, make sure to report your income correctly so you're not overpaying this year.
What income gets reported to MA?
As many in New England know, Massachusetts has an income tax. In 2018 the rate was 5.1% (dropping to 5.05% in 2019)1 If you live in MA, more or less, all income is going to be taxable (wages, interest, dividends, etc.). Similar to the Federal return, taxpayers are entitled to certain deductions from their income. However, if you only work and MA and don't actually reside there, not all income is taxable to you. Essentially only the income earned in MA is taxable to Massachusetts. That means none of your investment (dividends/capital gains) or interest is taxable. More than that, if you split your time between MA and NH, only a proportionate share of income for the time worked in MA is taxable to the state. So, if you live in NH and work in MA make sure you are reporting only the income attributable to MA. Otherwise, you could be paying more in state taxes than you have to.
What about NH taxes?
New Hampshire is known for not having an income tax. But there is a lesser known tax that may be applicable to those residing in NH. Believe it or not, New Hampshire does have an interest and dividends tax. Similarly to MA, interest and dividends are only taxable to those who live in NH, not those who work here but live in MA. Even if you've lived in NH all your life, you may not have know about this tax because it does not apply to everyone. The tax only applies if you earn more than $2,400 of interest and dividends if single, and $4,800 if filing jointly.2 If you do happen to earn more than those thresholds, New Hampshire imposes a 5% tax on those amounts. Wages from work are still not taxable, just the dividends and interest.
The best way to be prepared for tax time is to keep good records throughout the year. Knowing what income is taxable where is essential in knowing what to track. If you don't have good records this year that's alright, because now you know what you'll need going forward. Living in NH and working in MA can be tricky but it doesn't have to be. Knowing the tax rules is the first step in making this tax season as painless as possible.