Overview

Remote work changed where Americans earn income. That shift matters for state income tax residency tests, which decide whether a state can tax an individual’s income. The tests vary by state, and remote workers who live in one state while working for an employer in another can face multistate filing obligations, withholding surprises, or audits.

In my practice advising remote employees and business owners, the most common errors I see are: (1) failing to track days in each state, (2) assuming a move automatically changes tax residency, and (3) not understanding a particular state’s statutory rules. This guide explains the rules, evidence states use, common traps, and practical steps to reduce risk.

Sources cited in this article include the Internal Revenue Service for federal guidance (www.irs.gov), state tax authority pages such as New York’s residency rules (https://www.tax.ny.gov/pit/residency/) and the California Franchise Tax Board (https://www.ftb.ca.gov/file/personal/residency/), plus research from the Tax Foundation (https://taxfoundation.org).

Why this matters for remote workers

  • A state that considers you a resident can tax your worldwide income.
  • States may tax income earned inside their borders even if you’re a nonresident.
  • Residency determinations affect where you file, how employers should withhold, and whether you can claim credits for taxes paid to other states.

Many states moved quickly to clarify how remote work affects withholding during the pandemic, but rules kept evolving. States like New York and California still apply strict residency and statutory tests that can catch frequent travelers and partial-year residents.

The three common residency tests

  1. Domicile (intent-based)
  • Domicile is your permanent home — the place you intend to return to after absences.
  • States evaluate objective evidence: where you vote, your driver’s license, vehicle registration, home ownership, family location, and where you maintain personal belongings.
  • Domicile can’t be created or abandoned overnight; states look for sustained, documented intent.
  1. Physical presence (days-based)
  • Many states use a day-count threshold (commonly 183 days) to determine residency.
  • This test counts the number of days you are physically present in the state during the tax year.
  • Day-count rules differ: some states count any part of a day; others require overnight presence to count a day.
  1. Statutory residency
  • A statutory resident is someone who is not domiciled in the state but spends sufficient time there and maintains a permanent place of abode.
  • For example, New York’s statutory residency test generally applies if you maintain a permanent place of abode in NY and spend more than 183 days in the state (N.Y. Tax Law; see https://www.tax.ny.gov/pit/residency/).
  • Statutory rules make short-term or hybrid arrangements risky when you keep an apartment or home in a second state.

Practical examples and lessons from clients

  • Example 1: A client moved from Texas (no state individual income tax) to New Jersey and spent more than 183 days living and working remotely there. Even though their employer was still based in Texas, they became a New Jersey resident for tax purposes and were subject to NJ income tax. The key issue: physical presence plus evidence of intent to remain (lease, utilities) changed residency.

  • Example 2: A client lived in Florida but travelled to New York frequently for client meetings and exceeded New York’s day-count. New York applied statutory residency rules because the client maintained a pied-à-terre (permanent place of abode) in the state. This produced an unexpected state tax liability and required allocating income between New York and Florida for prior years.

In practice, small facts matter: whether you keep a second residence, the pattern of your travel, and how you document your intent.

Step-by-step checklist to limit multistate tax exposure

  1. Track every day: Maintain a contemporaneous travel log or calendar showing your physical location each day. Use timestamped digital records like calendar entries, travel receipts, or phone location history.
  2. Decide your domicile intentionally: If you want to change domicile, take clear actions: register to vote, obtain a driver’s license, register vehicles, change mailing addresses, and spend more time in the new state than the old one.
  3. Close second residences you don’t need: A maintained permanent place of abode in another state can trigger statutory residency. Sell or terminate leases you don’t plan to keep.
  4. Review employer withholding: Ensure your employer is withholding based on the correct state(s). Remote work often requires multistate payroll adjustments.
  5. Save documentary evidence: Keep leases, utility bills, closing statements, employment records, and travel logs for at least six years — states can audit prior-year returns.
  6. Consult a multistate tax specialist for complex or high-income situations.

Record-keeping: what to save and why it helps

States weigh both subjective intent and objective facts. When I represent clients in residency audits, the documents that most consistently help are:

  • Dated travel calendars or cell-phone location summaries
  • Lease agreements and utility bills showing occupancy dates
  • Voter registration updates and driver’s license records
  • Mortgage or closing documents
  • Airline, hotel, and rental receipts
    Collecting these items contemporaneously is far more persuasive than post-hoc reconstructions.

Withholding, filing, and credits for taxes paid to other states

  • Nonresidents generally file a nonresident return in the state where they earned income and a resident return in their state of domicile if required.
  • Most states provide a credit for taxes paid to another state on the same income to avoid double taxation. Rules and calculation methods differ; always check the specific state forms and instructions.
  • Employers might need to withhold in multiple states for employees who split time. If your employer refuses to withhold correctly, you may need to make estimated tax payments to avoid penalties.

Common mistakes and how to avoid them

  • Assuming “I work remotely so I only pay taxes where I live” — wrong. Income sourcing and residency rules can separately trigger tax obligations.
  • Relying solely on a lease break or informal statements to establish a change of domicile — evidence must show clear intent and action.
  • Forgetting local taxes — some cities or counties have separate income taxes.

When states aggressively enforce residency rules

States with large tax bases often scrutinize taxpayers who appear to split time. New York is known for auditing high-income individuals and applying the statutory residency test; California also takes domicile and habitual presence seriously (see NY Dept. of Taxation and Finance and CA FTB pages above). If you receive a residency audit notice, preserve all records and contact a tax attorney or CPA who handles state residency disputes.

Practical planning strategies (what I recommend)

  • Keep a strict day-count policy: decide in advance which state you will treat as your tax home for the year, then follow that plan and document it.
  • If you plan to relocate for tax reasons, effect a full break with the old state: move your family, change registrations, and sever financial ties.
  • For frequent travelers, consider consolidating travel into predictable windows that keep you under thresholds.

When to get professional help

Get help if:

  • You have multiple residences or a second home in another state.
  • You lived in two or more states during the year and earned income in both.
  • You were audited by a state taxing authority or received a notice claiming residency.
    A multistate CPA or tax attorney can model tax outcomes, advise on evidence to keep, and, if needed, represent you in appeals or audits.

Interlinking resources on FinHelp

Sources and further reading

Professional disclaimer

This article is educational and reflects common practices and examples from my work advising remote workers. It is not legal or tax advice for any individual circumstance. For specific guidance about your residency or filing obligations, consult a licensed CPA or tax attorney familiar with the states involved.