Overview

When you move between states in a tax year, each state may claim the right to tax income earned while you were a resident there or income sourced to that state. States use residence‑based rules, source/sourcing rules, or apportionment formulas for business income. The goal is to report only the portion of income each state can tax and to use credits where allowed to avoid double taxation (see IRS and state guidance).

How to allocate income — step‑by‑step

  1. Establish your residency periods
  • Document the official date you became a resident and the date you ceased residency (driver’s license, lease, closing statement, employment start/stop, or utility bills). Many states treat the day you arrive as the start of residency and the day you leave as the last day.
  1. Separate types of income
  • Wages: generally taxed by the state where services were performed. If you worked remotely for an employer in one state while living in another, follow the state’s sourcing rules. See our guide on sourcing rules for multistate income.
  • Business income: subject to apportionment; states use payroll/sales property formulas differently.
  • Retirement, interest, dividends: usually taxed by state of residency when received; some states exempt certain retirement income.
  • Rental and capital gains: sourced to the state where the property is located.
  1. Use employer documentation and paystubs
  • Break out pay for days worked in each state or request a wage statement split by state. Employers can issue corrected W‑2s or provide a supplemental statement to support allocation.
  1. Apply the state’s part‑year rules and credits
  • File the state’s part‑year return (or nonresident return for income sourced to that state) and claim any credits for taxes paid to the other state. Many states provide a dollar‑for‑dollar credit for income taxed by another state on the same income; rules vary.

Simple allocation example

  • You worked Jan–Jun in State A and Jul–Dec in State B. Your annual wages were $100,000: $45,000 earned while a resident of State A and $55,000 in State B. On State A’s part‑year return report the $45,000; on State B’s return report the $55,000. If State B taxes both periods, you may claim a credit on the State B return for taxes paid to State A on the $45,000 (subject to state rules).

Recordkeeping checklist

  • Move documentation (closing statement, lease start/end, driver’s license change)
  • Paystubs with dates and state of work
  • Employer letters or split W‑2 statements
  • 1099s and K‑1s showing source/state codes
  • Time sheets, travel logs for split work locations

Common mistakes to avoid

  • Treating all income as federally allocated — state sourcing rules differ from federal rules.
  • Forgetting to split employer wages by days worked in each state or failing to get employer support.
  • Overlooking credits for taxes paid to another state or misclaiming residency period.
  • Ignoring local rules for remote work (some states tax based on employer location or where services are performed).

Professional tips from practice

  • Ask your payroll or HR for a detailed earnings report showing payments by work location before filing. I frequently obtain employer‑issued wage splits for clients to substantiate allocations in audits.
  • If you earn business income, run the state apportionment calculation early—apportionment formulas (sales, payroll, property) can materially change state tax liability.
  • When moving to a no‑income‑tax state (for example, Florida or Texas), note that your final part‑year return in the old state still likely covers earnings while you were a resident.

When to get help

  • Complex situations (partnership S‑corp K‑1s, multiple moves in a year, high‑income apportionment) generally warrant CPA or state tax attorney assistance.

Authoritative resources

Internal resources on FinHelp

Disclaimer

This article is educational and does not replace personalized tax advice. State rules vary and change; consult a CPA or your state tax agency for guidance specific to your situation.