Do I Have to File Taxes in Two States if I Moved?

Moving from one state to another can complicate your tax situation, particularly in determining where you need to file. Understanding your obligations is crucial for compliance and avoiding penalties. Let’s explore how relocating impacts your tax responsibilities.

Residency Rules and Criteria

Determining residency status is key to understanding your tax obligations when moving between states. Each state has specific rules for establishing residency, often considering factors like the duration of your stay, the location of your primary residence, and your intent to remain. For example, spending more than 183 days in a state may classify you as a resident under the “183-day rule.”

States also examine indicators such as voter registration, the issuance of your driver’s license, and the location of your bank accounts. New York uses a “domicile” test, which evaluates your permanent home and where you intend to return after temporary absences. This test considers personal connections and lifestyle.

In some cases, two states may claim you as a resident if you maintain significant ties to both, such as owning property or having family in each. States often rely on tax treaties or agreements to resolve such conflicts, preventing double taxation and clarifying filing requirements.

Partial-Year Filers

When you move during the tax year, you may need to file as a partial-year resident in both states, reporting income earned while living in each location. Most states require partial-year residents to file if their income surpasses a set threshold, which varies by state. For example, in 2024, California requires filing if gross income exceeds $19,310 for single filers, while New York’s threshold is $8,000.

Filing as a partial-year resident involves allocating income, deductions, and credits between states to ensure you are taxed only on income earned while residing in each state. For instance, if you earned $60,000 in the year but only $25,000 while living in California, you would report $25,000 on your California return. This often requires prorating deductions like mortgage interest or property taxes.

Each state provides specific forms for partial-year filers, such as Illinois’s IL-1040 or Virginia’s Form 760PY, which guide taxpayers through dividing income and deductions. These forms typically require detailed information about residency dates and income sources.

Nonresident Return Requirements

Nonresident tax returns are required for individuals earning income in a state where they do not reside. This often applies to those who work across state lines or own rental properties in other states. Nonresidents generally file returns in the state where the income originates. For example, a New Jersey resident working in New York would file a nonresident return in New York using Form IT-203.

Nonresident returns focus on income sourced within the state, such as wages, rental income, or business income. States differ in defining source income. For example, New York’s “convenience of the employer” rule taxes telecommuters if their employer is based in the state. Understanding these distinctions is essential to avoid double taxation.

Tax rates and filing thresholds for nonresidents vary. For instance, New York’s 2024 nonresident tax rates range from 4% to 10.9%, depending on income. Nonresident filers should also explore deductions and credits, such as credits for taxes paid to other states.

Reciprocal Agreements Between States

Reciprocal tax agreements simplify tax obligations for individuals living in one state but working in another. These agreements allow residents to pay income taxes only in their home state, eliminating the need to file multiple state returns. For instance, the agreement between Illinois and Wisconsin enables residents to file taxes solely in their state of residence.

These agreements typically apply to wages and salaries, while other income types, like rental or business income, may still be taxed in the state where earned. To benefit, employees usually submit a withholding exemption form to their employer. For example, Illinois residents working in Wisconsin file Form W-220 to prevent Wisconsin taxes from being withheld.

Tax Credits When Dual-Filing

Tax credits help mitigate the risk of double taxation for those filing in multiple states. Often called “credit for taxes paid to other states,” these credits ensure taxpayers are not taxed on the same income in multiple jurisdictions. For example, if you pay taxes on the same income in New York and New Jersey, you can claim a credit on your New Jersey return for taxes paid to New York, following specific guidelines.

Claiming these credits involves completing forms and providing proof of taxes paid, such as a copy of the nonresident return. Each state has unique requirements, often requiring detailed income breakdowns and documentation.

Potential Penalties for Noncompliance

Failure to comply with state tax filing requirements can lead to significant penalties. States impose fines for late filing, underpayment, or failure to file. For instance, California charges a late filing penalty of 5% per month, up to a maximum of 25% of the unpaid tax. Other states have similar penalties, with varying rates and thresholds.

Noncompliance can also result in severe consequences, such as liens or wage garnishments, affecting your credit score and financial standing. States may charge interest on unpaid taxes, compounding the amount owed. Staying informed about filing deadlines and requirements is essential to avoid these repercussions. Professional advice or tax software can help manage obligations effectively.