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My bank just got bought by a bank in another state. Does this mean my interest earnings are going to get reported in that other state and potentially require me to file tax returns in the other state?

How is this problem handled by big banks with branches in many states?

Five Bagger
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3 Answers3

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No. You owe/pay taxes based on your residency. The physical location of the entity paying you isn't relevant whether it's earned income or interest income.

There are some exceptions to this on an international basis. And, some states are aggressive in their methods of establishing residency but most involve you being physically present in the state over some time period.

quid
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    "The physical location of the entity paying you isn't relevant whether it's earned income or interest income." Not completely true. Many states tax income based on where income is earned rather than residency. Off the top of my head, working in NYC but living in NJ leads to income tax being charged by both (with NJ offering credits based on tax payed to NY), and working in Oregon while living in income-tax-free Washington will still lead to paying income tax to Oregon. – NeutronStar Apr 24 '19 at 20:47
  • Speaking as an outsider, the US tax system is crazy... not that this is much help to the OP – Steve Shipway Apr 25 '19 at 01:18
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    @SteveShipway How is it crazy that your physical presence determines whether a jurisdiction has authority to assess a tax? – quid Apr 25 '19 at 01:29
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    In (e.g.) UK or New Zealand, you generally don't need to do a tax return at all, and tax is constant over the whole country. It's simlar throughout the EU too. The US system seems (to outsiders) to be excessively complex and burdensome on taxpayers, particularly low-income ones. However I think we're digressing a bit from the original question – Steve Shipway Apr 25 '19 at 01:37
  • Most of the complex tax situations don't apply to most people. Most people will have estimated taxes remitted by their employer through the year, and file a very simple return at the end of the year. The complexity here (which doesn't actually exist as the answer to the question is no) arises out of state income taxes not US federal income tax. I know Denmark has something similar to locality assessed income taxes. The economy of just California is ~13x the size of New Zealand and there are 8x more people; California has it's own tax authority separate from the US. – quid Apr 25 '19 at 01:51
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    @Steve, once the EU starts assessing an income tax, it will be the same as the U.S. (Don’t think it can’t happen; the U.S. didn’t have an income tax for the first 120 years or so (not counting a brief period in the mid 19th century), so it’s only a matter of time for the EU.) – prl Apr 25 '19 at 04:42
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    @quid I think the part that makes the US system seem overly complex is that it's not taxed at source (like in the EU) - all taxation systems everywhere are a crazy complex mess, but in the EU you don't actually see it because your employer calculates what you are supposed to pay and then withholds it directly from your salary. It only gets messy if you are self-employed or work multiple jobs (and the latter isn't nearly as common in the EU). – xLeitix Apr 25 '19 at 08:26
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    @SteveShipway "It's simlar throughout the EU" - Not if you consider the EU as the equivalent of the USA and Germany as the equivalent of California it isn't. – Martin Bonner supports Monica Apr 25 '19 at 10:38
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    @quid What's really crazy is that the USA could easily have an "automatic" PAYE system where most of the non-self-employed citizens would no longer need to file tax returns, like the rest of the world does - but the Accountancy companies keep lobbying to prevent it, because they would lose so much money and business by people no longer balking at all that faff. (Also, if your parents are US citizens who emigrated abroad before you were born, you are considered a US citizen - so have to pay US income tax and file a tax return even if you have never been there or worked for a US company) – Chronocidal Apr 25 '19 at 11:49
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    @xLeitix in the US employers do generally withhold taxes – StayOnTarget Apr 25 '19 at 12:10
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    @Chronocidal If you're not resident, there are no state taxes to pay, and there are usually no federal taxes because you've paid equivalent tax in your country of residence (assuming a double taxation agreement). But you still have to file a return to demonstrate that you don't owe anything. Which is still a huge pain in the butt. – David Richerby Apr 25 '19 at 12:12
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    @xLeitix I don't know about other countries in EU, but at least in Finland and Sweden, where I've paid taxes, the employer doesn't really calculate anything, you just give them a paper sent by the tax office (or equivalent) with your estimated tax rate for the year and they withhold taxes based on that; that estimated rate might or might not be correct. Your actual taxes depend on your actual salary and various other deductions which the employer might know nothing about, and they are calculated by the tax office (and then corrected by you) the next spring. – JiK Apr 25 '19 at 14:59
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    @Chronocidal, I disagree entirely. The beauty of the US tax system, often ignored by the folks who want the government to hold their hand and someone else to do the work, is it evolved around the idea that my life and financial situation is private. I don't want to tell my employer(s) what my other enployer(s) are paying me or withholding. And I CERTAINLY don't want the government calculating my taxes for me. The EU is funded by a VAT which is highly regressive tax; and the US doesn't have that (yet) it has an income tax; but so do a number of the individual states. – quid Apr 25 '19 at 15:15
  • @xLeitix, taxes are paid at the source, for almost all employees. For the majority of working folks in the US their employer(s) estimates their tax due based on a rate of pay calculation to estimate an annual income number, taxes are withheld from paychecks and remitted to the tax authorities through the year. At the end of the year the employer issues a W2 indicating total amounts paid and withheld, a return is filed and the employee either owes a little more or gets some back. The issue is the false comparison between the US and a single EU country like I and MartinBonner have mentioned. – quid Apr 25 '19 at 15:23
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    @quid The government already calculate your taxes, they just currently don't tell you the result: your employer must legally send their payroll tax information to the IRS. (And, I fail to see how VAT vs Sales Tax is in any way relevant here?) – Chronocidal Apr 25 '19 at 16:02
  • @Chronocidal the US government doesn't already calculate your taxes. Your employer does, likely it's outsourced payroll vendor's software. The US -> EU constituent country comparison isn't valid because the EU doesn't have an income tax, but the US does. In lieu of an income tax the EU assess a VAT. Residents of California pay California state income tax (as well as other CA taxes) and US Federal income taxes, to two different tax authorities. German residents pay a German national income tax and an EU VAT, so there is no EU income tax equivalent to compare. – quid Apr 25 '19 at 16:46
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    @quid All your employer does is withhold amounts as per your expected tax liability and report that. The IRS most certainly does calculate taxes for people; how else can they verify if your returns are accurate? They just don't do it for everyone all the time. – JAB Apr 25 '19 at 21:42
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    @JAB You, the tax payer, prepare a return in which you tell the government what your applicable income, deductions, and tax liability was. Based on your return and the estimated amounts that either you or an employer has already remitted, you will either owe additional taxes or be entitled to a refund of over-payment. Beyond this, some taxpayers are audited annually. The information reported to the IRS on your behalf does not necessarily paint a complete picture of your tax situation. – quid Apr 25 '19 at 22:10
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    @quid The individual countries of the EU do have Income tax, and the same countries charge VAT. The countries then fund the EU, which itself does not charge tax - although, it does place restrictions on what levels and types of tax the member countries can charge. (Such as if the USA passed a law requiring that all states charge at least 1% Sales Tax) But, this is now going off topic – Chronocidal Apr 26 '19 at 07:33
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    This entire exchange has been offtopic and an utter waste of time. The EU does not have an income tax. And, again, this question is about a state income tax issue, not US federal tax, Again, a resident of California owes California state income tax and federal income tax; payable to the California Franchise Tax Board and the US IRS respectively. A resident of Germany owes German income tax and some VAT, but no separate EU income tax. In the US, the burden to report applicable income and pay the applicable tax is bourne by the taxpayer; which is not crazy or the result of lobbying. – quid Apr 26 '19 at 10:31
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Banks anywhere in the US report the interest you earn in a 1099-INT. You then report this income in your federal return, and in your home state return, if your state requires you to file.

I believe what you're alluding to is when you earn wages in multiple states (which would come in a W2 form). Only then you might need to file reports in multiple states.

Earth
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If the bank is doing business in your home state and ofering bank accounts to residents of your home state, then there is no question that the interest they pay you is taxable in your home state and nowhere else.

Harper - Reinstate Monica
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