How to File Taxes When You Move States

Moving to a new state introduces tax complexities beyond updating your address. Each state has its own tax laws and definitions, affecting where and how your income is taxed. Understanding these differences is important for managing financial obligations and ensuring compliance. Navigating state tax requirements after a move involves determining residency, understanding income sourcing, and properly filing returns in multiple states if necessary.

Understanding Tax Residency After Moving

Determining tax residency is a primary step after relocating. States typically use two concepts: “domicile” and “statutory residency.” Your domicile is your permanent home, where you intend to return after temporary absences and where your most significant connections lie. An individual can only have one domicile at any time.

Establishing a new domicile requires demonstrating intent to make the new state your permanent home, evidenced by actions such as obtaining a new driver’s license, registering to vote, opening local bank accounts, and moving your primary home. Your old domicile remains in effect until you abandon it and acquire a new one with intent to make the new location your permanent home.

Conversely, statutory residency is determined by physical presence within a state, often defined by spending over 183 days in that state during a tax year, along with maintaining a permanent place of abode. Even if your domicile is in one state, you could be a statutory resident of another if you meet their physical presence and abode criteria. Any part of a day spent in a state counts as a full day for statutory residency calculations.

A move can result in different residency scenarios. You might be a full-year resident of one state if your move occurred early in the year and you established clear domicile and physical presence. If you moved during the year, you would likely be a part-year resident in both your old and new states, meaning each state taxes only the income earned while you were a resident there. It is also possible to be domiciled in one state but considered a statutory resident of another, leading to dual residency.

State tax authorities consider several factors to determine residency status:
Location of your primary residence
Where you spend most of your time
Professional ties
Family connections
Social relationships
Where your car is registered

Sourcing Income to Different States

Understanding how different income types are “sourced” to specific states is important, especially when living in one state but earning income from another. Sourcing rules determine which state can tax a particular income stream. Generally, states tax non-residents only on income earned from sources within that state.

Wages and salaries are sourced to the state where work is physically performed. For example, if you reside in one state but commute to work in another, your wages are taxable by the state where you physically work, regardless of residency. Even with remote work, the physical location where work is completed determines wage sourcing.

Self-employment and business income are sourced to the state where services are performed or business operations are conducted. If you operate a freelance business from your new state but have clients or perform services in your previous state, income may need apportionment between the two states. The location of the economic activity generating income is the determining factor.

Rental income is sourced to the state where the property is located. This applies regardless of where the owner resides. If you move but retain rental property in your former state, that income remains taxable by the state where the property is situated.

Capital gains and losses from asset sales, such as stocks or mutual funds, are sourced to your state of residency at the time of sale. However, capital gains from real property sales are sourced to the state where the property is located. For example, if you sell a home in your old state after moving, the gain may be taxable by that state.

Retirement income and pensions are sourced to your state of residency. This means the state where you reside when receiving the pension or retirement distribution taxes that income. This rule can differ from wage sourcing, where the work location is paramount.

Navigating Multi-State Filing and Credits

Filing tax returns in multiple states is often necessary if you are a part-year resident of two states during the same tax year, or a resident of one state earning income sourced to another. This frequently occurs if you move mid-year or live in one state and work or have business interests in an adjacent state. Each state has its own rules for determining filing requirements for part-year residents and non-residents, including minimum income thresholds or days spent working in the state.

A primary concern with multi-state income is potential double taxation, where two states attempt to tax the same income. To mitigate this, most states offer a “credit for taxes paid to another state.” This credit prevents taxpayers from being taxed twice on the same income by different state jurisdictions. The resident state typically provides this credit for income taxes paid to a non-resident state.

To claim this credit, understand its calculation. The credit is limited to the lesser of the tax paid to the non-resident state on overlapping income or the tax due to your resident state on that same income. This means you will not pay more in total state taxes than if all your income was taxable by your resident state alone, unless the non-resident state has a higher tax rate. The income must be subject to tax in both states to qualify for the credit.

Preparation for claiming this credit involves identifying income taxed by both states. You will need details from your non-resident state return, such as the amount of income sourced to that state and the tax paid. This information calculates the credit on your resident state return. While forms and calculations vary by state, the principle is to ensure you receive relief for taxes already paid elsewhere on the same income. Some states have reciprocal agreements, simplifying filing for residents working across state lines by allowing them to pay tax only in their state of residence. Absent such an agreement, filing in both states and claiming the credit is the standard approach.

Submitting Your State Tax Returns

Once you have determined residency status, sourced your income, and prepared multi-state credit calculations, the final step is submitting your state tax returns. The order of filing is important for accurate credit calculations. It is recommended to file non-resident state tax returns first.

Filing the non-resident return first allows you to determine the exact income taxed by that state and the tax liability incurred. This information calculates the credit for taxes paid to another state on your resident state return. After completing all non-resident state returns, prepare and submit your resident state tax return, incorporating any applicable credits. Tax software often facilitates this process by automatically carrying over necessary information once the non-resident return is completed.

Common methods for submitting state tax returns include e-filing through tax software or mailing paper returns. E-filing is often preferred due to its speed and confirmation of receipt. If mailing paper returns, ensure all required forms and schedules are included and sent to the correct state tax authority address.

Keep detailed records of all filed returns, supporting documentation, and payment confirmations for at least three to seven years following the filing date. This documentation includes W-2s, 1099s, and other income statements. Thorough records are important for future reference or in case of correspondence from state tax agencies.