Which State Do I Pay If My W-2 Is in One State and Locums Are in Another?
Your W-2 withholding follows one set of rules and your 1099 shifts follow another. Mixing them up is how locums end up with surprise nonresident balances and penalty letters.
A guide by Taxstra Tax & Accounting · CPA-led tax strategy for business owners
Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last updated August 18, 2026.
The short answer
You will usually file in both. Your resident state taxes every dollar you earn anywhere, W-2 and 1099 alike, then credits you for tax paid to other states. Each work state taxes what you earned inside it: the W-2 job through withholding, the 1099 shifts through a nonresident return you fund with estimated payments, because nobody withheld anything. And the trap in the middle: if your two states have a reciprocity agreement, it almost certainly covers only employee wages, not your 1099 locum income.
Two income streams, two rulebooks
Picture the common setup: you live and work a W-2 hospital job in one state, and drive across the border for 1099 locum weekends. The W-2 half behaves politely: your employer withholds where you work, reciprocity may even let border commuters withhold at home, and the boxes on the W-2 tell the story. The 1099 half has no such plumbing. Income is sourced to the state where you physically performed the services, allocated by your working days there, and no one is withholding or reporting it to that state on your behalf until the 1099 itself surfaces in a data match.
The result is a predictable failure mode we see in new locum files constantly: the W-2 state is handled automatically, the work state is ignored all year, and the first contact with it is a balance-due notice with penalties. The fix is unglamorous: know your states before the assignment starts, and put the nonresident estimates on the same calendar as your federal ones, which we cover in the quarterly tax guide.
| Question | W-2 hospital job | 1099 locum shifts |
|---|---|---|
| Who taxes it first? | Work state, via withholding | Work state, via your estimated payments |
| Does reciprocity help? | Often, for border commuters (wages only) | Generally no; contractor income is outside most agreements |
| What does the resident state do? | Taxes it, credits work-state tax | Same: taxes it, credits work-state tax properly paid |
| Paper trail | W-2 boxes by state | Your own day-count log and invoices |
| Common failure | Wrong-state withholding after a move | No nonresident return filed at all |
Worked example: home-state W-2, border-state weekends
Physician lives in State A ($300K W-2 there), works $80K of 1099 shifts in State B
- State B nonresident return: taxes the $80K earned in B
- say 5% = $4,000
- State A resident return: taxes all $380K
- say 4.5% = $17,100 before credit
- State A credit for tax paid to B (limited to A’s rate on that income)
- $3,600 credited
- Net effect on the $80K
- You pay B’s 5%, not 9.5% and not zero
Total state tax lands at roughly the higher of the two rates on the locum income. The credit usually prevents double taxation, but it is capped at your home state’s rate, so working in a higher-tax state costs the difference. Illustrative rates; run your actual states.
Three wrinkles worth knowing. First, the credit is capped: if the work state charges more than your home state would have, the excess is a real cost of that assignment, and it belongs in your rate negotiation. Second, if you live in a no-tax state, there is no resident tax and no credit; every work state bills you at its own rates with nothing to offset. Third, thresholds differ: some states want a return from the first dollar of nonresident self-employment income, others have de minimis floors. Our state reciprocity reference and multi-state estimator are built for exactly this sorting.
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Frequently Asked Questions
Do I pay state tax where I live or where I work locum shifts?
Both, with a credit to prevent true double taxation. Your resident state taxes all of your income wherever earned. Each nonresident state where you physically perform shifts taxes the income earned inside its borders. Your resident state then gives a credit for tax properly paid to the work states, so you generally end up paying the higher of the two rates on each dollar, not both rates.
How is 1099 locum income sourced to a state?
By where you physically performed the services, typically allocated by working days or by receipts from work done in the state. The agency mailing the check from elsewhere, your LLC being formed elsewhere, and your home being elsewhere all change nothing. If you rounded in a hospital in that state, that income is sourced there.
Does a state reciprocity agreement cover my 1099 locum income?
Generally no. Reciprocity agreements, like the ones among Midwest neighbors, cover wages and salaries of employees who commute across the border. Independent contractor income is outside most of these agreements, so a W-2 commuter and a 1099 locum working the same hospital can have completely different filing obligations.
Do I still file in a work state if it withheld nothing from my 1099?
Yes. Nobody withholds for you on a 1099; that is the point of estimated payments. If your income in a nonresident state exceeds its filing threshold, you owe a nonresident return whether or not a single dollar was withheld. Skipping it risks notices years later, because states match 1099s issued to your name or entity.
What if I live in a no-income-tax state like Texas or Florida?
You still owe nonresident tax in the states where you perform shifts, and there is no resident-state tax for the credit to offset. Living in Texas and working Wisconsin shifts means Wisconsin tax on the Wisconsin income, full stop. The zero-tax home state helps most on income earned at home or in other no-tax states.
Where is telehealth income sourced when I see patients across state lines?
The default sourcing principle points to where YOU physically sit while performing the service, so telehealth shifts worked from your home state are generally home-state income even when the patients and the facility are elsewhere. States are actively developing positions here and licensure rules add their own layer, so a heavy telehealth mix deserves a state-by-state review rather than one blanket assumption.
The agency withheld for the wrong state on my W-2 locum work. Now what?
Withholding errors change your cash flow, not your liability: you file the correct states, claim a refund from the wrongly credited one, and pay the right one, sometimes with penalty relief for reasonable cause since the withholding trail shows good faith. Fix the payroll setup for future assignments the same week; refund-and-repay reconciliations are annoying enough once.
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This page is educational, not individualized tax advice. Locum tenens tax outcomes depend on your contracts, your states, and your numbers. Savings vary by client and results are not typical of every situation. Consult a qualified tax professional before acting on anything here.