Why state residency matters for frequent movers
State residency determines which state(s) can tax your income, pension, retirement distributions, and sometimes capital gains. For frequent movers, poorly planned relocations or weak documentation can create dual‑state audits, double taxation, or unexpected liabilities in high‑tax states such as California or New York (California Franchise Tax Board; New York State Department of Taxation). Federal agencies like the IRS do not set state residency rules, so you must follow each state’s tests and filing requirements (IRS: tax information at www.irs.gov).
In my 15+ years advising mobile clients, I’ve seen two recurring outcomes: (1) clients who proactively codified a move and avoided audits, and (2) clients who assumed physical moves alone were enough and later faced costly fights. The difference usually comes down to preparedness and documentation.
Core residency tests states use
- Domicile (permanent home): The state you intend as your permanent home. Changing domicile requires an intent to abandon the old domicile and adopt a new one; physical presence alone is not enough.
- Statutory or day-count tests: Many states use a 183‑day threshold or a similar statutory residency rule. If you meet the day count and maintain significant ties, you can be treated as a resident.
- Part‑year and nonresident rules: Most states have part‑year residency filing and allocation rules for income earned while you were a resident vs. nonresident.
- Connections/ties test: States evaluate where your family lives, location of primary bank accounts, voter registration, driver’s license, vehicle registration, and where you work.
No single test applies universally; states mix these factors into their residency rules (see state residency resources below).
Practical, step‑by‑step strategy for frequent movers
- Plan moves around your income calendar
- Delay or accelerate major income events (bonuses, asset sales, exercising options) if the shift reduces your exposure to a high‑tax state. If possible, realize income in the year you are a resident of a lower‑tax state.
- For split‑year situations, understand how each state apportions wages, retirement, and capital gains; this can change the tax owed materially.
- Establish new domicile with affirmative actions
- Obtain a local driver’s license and register your vehicle promptly.
- Register to vote and cast ballots in person where you claim residency.
- File a declaration of domicile if your new state permits it (helps create contemporaneous evidence of intent).
- Sever ties with your old state
- Close old‑state accounts you don’t need; move primary banking to your new state.
- Sell or rent out former residences—vacant homes create ambiguity.
- Transfer professional licenses where required and update official addresses.
- Create objective, dated documentation
- Keep a relocation binder: closing/lease documents, utility turn‑on dates, change‑of‑address confirmations, new employer HR records, voter registration, and receipts showing physical presence.
- Maintain a contemporaneous day‑count log (date, location, purpose). If audited, a detailed log beats vague memory.
- Use safe harbors and formal filings when available
- Some states offer safe‑harbor rules or presumptions (for example, short‑term worker exceptions or specific day‑count methods). Identify those rules before a move.
- Consider entity and employment structure
- If you run a remote business, consider where your company is domiciled and where payroll is run. Multistate payroll can create withholding obligations; consult payroll specialists.
- Get pre‑move professional advice
- Talk to a CPA or state tax attorney familiar with the state you’re leaving and the one you’re entering. Early advice can prevent mistakes that are costly to fix after the fact.
Documentation checklist to support a residency claim
- Lease/closing statement with move‑in date.
- Utility bills and activation dates in your name.
- Driver’s license and vehicle registration with issue dates.
- Voter registration confirmation and voting history.
- Bank account openings and primary debit/credit card addresses.
- Payroll HR forms showing work location and state tax withholding changes.
- Health insurance and physician records showing primary providers.
- Records of professional licenses and memberships in local organizations.
- A contemporaneous day‑by‑day presence log (dates, city/state, reason).
Keeping this evidence for at least 3–7 years is prudent; many state audit windows extend multiple years.
Common pitfalls I see in practice (and how to avoid them)
- Relying only on physical presence: Without affirmative steps to change domicile, some states will argue you remain domiciled in the old state.
- Maintaining ambiguous ties: A second home, local credit cards, or a family member living in the old state can trigger a residency challenge.
- Not updating payroll withholding: Failing to change state tax withholding immediately upon moving can create complicating tax filings and unnecessary withholdings.
- Ignoring retirement and investment income: State sourcing rules for pension, Social Security, and distributions vary—don’t assume retirement income follows your new address automatically.
Handling dual‑state or multistate audits
- Respond promptly to notices and provide organized documentation. Delays and disorganization weaken your position.
- Use a specialized CPA or tax attorney—state residency audits hinge on nuanced facts and legal definitions; experienced representation matters.
- Be prepared to negotiate settlements or pursue appeals. Some audits can be resolved by offering partial periods as part‑year resident with supporting evidence.
Examples and scenarios (practical illustrations)
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Example 1: Moving from Texas to California. Texas has no state income tax; California is aggressive about residency and taxes worldwide income of residents. A client who moved needed to show timely severance of Texas ties (sold Houston home, closed local accounts) and establish California ties (CA driver’s license, voter registration, lease). Time your asset crystallization (stock sales/options) so major taxable events occur after you have clear California residency—or before you move if you want to avoid CA tax—but always consult your CPA first.
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Example 2: Snowbird moving between New Jersey and Florida. To obtain Florida domicile, the clients executed an affidavit of domicile, moved banking, and spent well over 183 days in Florida. They also obtained a Florida driver’s license and joined local organizations. They kept a day‑count calendar and copies of airline receipts and utility bills for three years to support the claim in case of a New Jersey inquiry.
Special rules for remote workers and employers
- Remote employees who work for an employer based in a different state can trigger withholding in both states. Employers and employees should coordinate to update payroll and withholdings based on actual work location and applicable reciprocal agreements.
- Employers should evaluate nexus and payroll tax obligations—frequent employee moves create multi‑jurisdiction withholding responsibilities.
How state differences affect strategy
- Aggressive residency states: California and New York evaluate intent and day counts closely and can audit high‑income individuals aggressively (CA FTB; NY Dept. of Taxation). These states may use a combination of domicile and statutory tests.
- No broad income tax states: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no broad‑based individual income tax. New Hampshire historically limited tax to interest/dividends while Tennessee fully repealed its Hall income tax in 2021. Choosing domicile in a no‑income‑tax state can reduce income tax but may not eliminate other state taxes (property, sales) or exposure from work performed in other states.
Filing tips and split‑year considerations
- File part‑year resident returns when you moved mid‑year; allocate wages and other income to the appropriate periods.
- Keep copies of both states’ residency forms and instructions—states vary widely on apportionment formulas and credits for taxes paid to another state.
When to get professional help
- You have high income, frequent moves, stock option exercises, or large retirement distributions.
- You are subject to residency audits or get a letter from a state tax department.
- Your employer cannot or will not update payroll withholding promptly.
Resources and authoritative references
- California Franchise Tax Board, Residency Information: https://www.ftb.ca.gov/file/personal/residency/
- New York State Department of Taxation and Finance, Residency: https://www.tax.ny.gov/pit/file/residency.htm
- IRS general tax information: https://www.irs.gov/
- Consumer Financial Protection Bureau (CFPB): https://www.consumerfinance.gov/
Useful internal guides:
- Read our primer on State Residency Planning: Steps to Legitimize a Tax Move for a practical checklist and sample forms (FinHelp: State Residency Planning: Steps to Legitimize a Tax Move).
- If you face questions about where you owe income tax, see our guide on State Residency Rules: Determining Where You Owe Income Tax (FinHelp: State Residency Rules: Determining Where You Owe Income Tax).
Professional disclaimer
This article is educational and does not constitute legal or tax advice. Your facts may change the outcome in ways not covered here. Consult a CPA or state tax attorney licensed in the relevant state(s) for advice tailored to your situation.
If you’d like, I can provide a customizable move‑checklist template or a sample day‑count spreadsheet to help you track presence across states.
