When two states tax the same income, you usually do not pay twice. The state you live in taxes all of your income, the other state taxes the part earned there, and your home state gives a credit for the tax the other state charged. The credit only works if both returns are filed, and filed in the right order.
When two states both have a claim
There are three common situations.
You live in one state and work in another. Commuters across a state line are the classic case. The work state taxes wages earned there, and the home state taxes everything.
You moved during the year. Each state taxes its part of the year, and some income, such as a bonus or vesting stock, can be claimed by both. The move itself is covered in what happens to your return when you move states mid year.
You have income sourced to another state. A rental property, a partnership share, or business income from another state is usually taxed there as well as at home.
How the credit prevents double tax
You file a nonresident return in the state where the income was earned, reporting only that income. You file a resident return at home, reporting everything, and claim a credit there for the tax paid to the other state on the same income.
The credit is generally limited to the tax your home state would have charged on that income. If the other state’s tax is higher, you pay the higher of the two, not both. If it is lower, the home state collects the difference.
How double tax actually happens
Double tax is rarely the result of the rules. It is usually the result of one of two filing mistakes.
The credit is never claimed. The resident return is filed with all income on it and no credit, often because the software was never told about the other state. The home state is happy to accept the full amount.
The nonresident return is never filed. Someone assumes that because they live elsewhere, the work state has no claim. The work state then assesses tax later, often with penalties, after the home state’s return has closed without a credit.
Both are fixable by amending, but each amendment is slower than getting it right the first time.
Remote work, and the rule that catches people
Remote workers commonly believe they only owe tax where they physically sit. That is mostly true. Most states tax nonresidents only on work done within their borders.
A few states go further and tax work for an employer based in that state even when it is done from home somewhere else, unless the arrangement is for the employer’s necessity rather than the employee’s convenience. This is the main source of real double tax, because the home state may not credit a tax it considers the other state had no right to charge.
Which states apply that rule, and how, changes. If your employer is in a different state from your home, it is worth checking that state’s current rule before the year closes, not after.
The order of preparation
Prepare the nonresident return first. The resident return’s credit depends on the tax actually charged by the other state, and that figure is not final until the nonresident return is finished.
The same applies to withholding. If your employer withholds for the work state, check whether your home state also expects withholding or estimated payments. Paying the right amount to each state during the year is easier than recovering an overpayment from one of them after it. Sizing those payments is covered in quarterly estimated payments.
Some states have agreements
Some neighboring states have agreements under which a resident of one who works in the other is taxed only at home. Where one applies, you give your employer an exemption certificate and the work state withholds nothing.
These agreements exist only between specific pairs of states. Do not assume one applies because it would be sensible.
Where it is worth having it prepared
Two states, a move, remote work, or income from property in another state are each manageable alone. Together they need one consistent set of dates and allocations across every return. Preparing all of them from the same figures is part of an individual return.