Quick answer

Residency rules decide where you owe state income tax. A state can tax residents on all income, part‑year residents on income earned while a resident, and nonresidents only on income sourced to that state. Because states use different tests (domicile, statutory residency, and sourcing), remote workers often must file more than one state return. For authoritative guidance, consult your state revenue department and national resources such as the Tax Foundation and the IRS for federal context. (Tax Foundation; IRS.)

How states determine residency — the three core tests

States use a mix of legal concepts to decide residency. The three most important are:

  • Domicile (intent and permanent home): Domicile is your true, fixed, and permanent home — the state you intend to return to. Changing domicile requires physical move plus clear acts that show intent (e.g., new driver’s license, voter registration, selling a home, moving family).
  • Statutory or physical‑presence tests: Many states (for example, New York and others) call someone a resident for tax purposes if they spend a set number of days in the state (commonly 183 or more) and maintain a permanent place of abode. This is sometimes called the 183‑day rule or statutory residency test.
  • Source-of-income rules: Even if you aren’t a resident, a state can tax income earned from work performed in that state (wages, services) or income sourced to businesses, real estate, or other in‑state activities.

States combine these tests in different ways. For example, California treats domicile as the primary test but also looks at where you perform services. New York has a strong statutory residency rule that can capture short‑term residents who keep a permanent place of abode. Always check the specific revenue department guidance for the states involved.

Why remote work complicates residency

Remote work separates the employer’s location from the employee’s work location. That split creates common complications:

  • Payroll withholding may follow the employer’s state unless the employer updates withholding to the employee’s work state.
  • A remote worker may live in a no‑income‑tax state (e.g., Florida, Texas) but still have to file a return where income is sourced (e.g., New York) if the state asserts sourcing rules.
  • Frequent travel, hybrid schedules, and short‑term assignments make day counts and domicile factors hard to document.

In my practice advising remote employees during and after the pandemic, the most common issue I see is withheld state taxes from the employer’s base state when the employee legally resides in another state — a solvable withholding and refund process, but one that requires early attention and records.

Practical steps to determine where to file

  1. Identify your domicile: Which state is your permanent home? Evidence includes where you vote, your driver’s license, where you rent/own a home, and where immediate family lives.
  2. Count days physically present: Track your days in each state with a calendar, time‑stamped location logs, or travel records. Many states define residency by a 183‑day threshold.
  3. Determine income source: For each pay period, note where the work was performed. For W‑2 employees, the state where services are physically performed generally sources wages; for contractors, the sourcing rules can differ by state.
  4. Check withholding: Review your pay stub and Form W‑4 (state equivalents) and request withholding changes if necessary. Employers may need a state withholding certificate for your work state.
  5. Evaluate credits and reciprocity: If you’re taxed by two states, look for credits on your resident return for taxes paid to other states. Some neighboring states have reciprocity agreements (e.g., PA/NJ have limited rules) — review state sites for details.
  6. Get documentation: Keep leases, bills, travel records, and employer correspondence showing where you worked and lived. This matters if a state questions your claim.

Filing scenarios and common outcomes

  • Same‑state resident and employer: File only in your resident state; wages are fully taxable there.
  • Resident in no‑tax state, employer in tax state: You may still owe taxes to the employer’s state if that state sources the income to where the work was performed or if the employer withholds incorrectly. You will file a nonresident return in that state.
  • Dual exposure (two state residencies): Some taxpayers meet residency tests in two states. In that case, you typically file as a resident in one state and as a nonresident or part‑year resident in the other and claim credits to prevent double taxation. When both states claim full residency, you may need to pursue statutory tie‑breaker rules or a domicile change audit posture.
  • Part‑year move: You generally file as a part‑year resident in both states and apportion income to the time you lived in each state.

Payroll and withholding: employer responsibilities and employee actions

Employers often withhold based on their payroll systems and may not automatically update withholding for remote employees. If you move or work remotely from another state:

  • Notify payroll and supply any required state withholding forms for your new work state.
  • If your employer refuses or delays, you may need to make estimated tax payments to your home state or the taxing state to avoid underpayment penalties.
  • If taxes were withheld to the wrong state, file a nonresident return to request a refund, and coordinate with payroll to fix future withholding.

For employers, many states now expect withholding for out‑of‑state remote employees when services are performed in the state — see specific state guidance and the FinHelp article on state residency and employer withholding for remote workers for employer compliance steps.

Internal resources: see “State Residency and Employer Withholding: Compliance for Remote Workers” and “Multi‑State Income Tax Filing: Tips for Remote and Traveling Workers” for checklists and sample letters to payroll teams.

Avoiding double taxation: credits and reciprocity

Most states offer a resident credit for taxes paid to another state on the same income. The credit reduces double taxation but requires careful allocation of income and documentation. Reciprocity agreements (where two states agree not to tax cross‑border wages) are limited and usually apply to neighboring jurisdictions with historic arrangements. Check your states’ instructions for the resident credit and any reciprocal tax agreements.

Documentation checklist (what to keep for audits or disputes)

  • Calendar or log of days in each state (ideally with calls, meetings, or remote‑work schedules).
  • Lease or mortgage statements, utility bills, voter registration, driver’s license/ID.
  • Employer communications about work location, telework agreements, and withholding elections.
  • Pay stubs and W‑2s showing state wage allocations and withholding.
  • Travel receipts and itineraries for business trips.

Common mistakes and how to avoid them

  • Assuming the employer’s state is the tax state: Don’t rely on employer withholding as the final word.
  • Failing to formally change domicile: Update licenses, registrations, and financial accounts when you intend to change your permanent home.
  • Not tracking days and locations: Day counts are the deciding factor in statutory residency tests.
  • Missing resident tax credits: If you pay tax to another state, file for resident credits promptly to avoid overpayment.

Audit triggers and enforcement

States may audit taxpayers who report a different residence than payroll records suggest, or when withholding indicates possible in‑state work. Common triggers include inconsistent driver’s license addresses, expensive in‑state purchases, and significant days logged in the taxing state. If audited, present the documentation checklist above and be ready to explain your move or remote work pattern.

State examples (high‑level)

  • New York: Strong statutory residency rule (183‑day type test combined with permanent place of abode) and aggressive enforcement for telecommuters; check New York DTF guidance.
  • California: Domicile is central; the state taxes residents on all income and has broad sourcing rules for wages.
  • No‑income‑tax states (e.g., Florida, Texas): Being a domiciliary there can eliminate resident state income tax, but you still may owe tax where services are performed.

Always read the latest guidance from the relevant State Department of Revenue: state rules change and enforcement increased after the pandemic-driven rise in remote work (Tax Foundation, state revenue sites).

Frequently asked practical questions

  • If I live in a no‑tax state but work for a company in a taxing state, do I owe taxes? Possibly — the taxing state may require a nonresident return for wages earned while performing services attributable to that state.
  • If I travel between states for work, which days count? States generally count days physically present inside state boundaries; business trips and short visits can add up, so keep a log.
  • Can I change my domicile quickly to avoid taxes? Changing domicile is a facts‑and‑circumstances test; simple checklist items (license, registration, family move) are necessary, but states scrutinize changes that look designed to avoid tax.

Recommended next steps

  1. Review your calendar and employer payroll status for the current tax year.
  2. Update state withholding forms and notify payroll if your work state changed.
  3. Assemble documentation that proves domicile and day counts.
  4. If multiple states claim tax, prepare resident and nonresident returns and claim credits; consider a tax pro for complex situations.

Resources and further reading

  • IRS — general federal tax guidance: https://www.irs.gov
  • Tax Foundation — analysis of state rules and remote work trends: https://taxfoundation.org
  • State Department of Revenue websites — search your state for statutory residency and sourcing rules.
  • FinHelp related articles: “State Residency and Employer Withholding: Compliance for Remote Workers” and “Multi‑State Income Tax Filing: Tips for Remote and Traveling Workers” (links above).

Professional disclaimer
This article explains general rules and common practice as of 2025 and is for educational use only. It is not tax advice. For personalized guidance about residency and filing obligations, consult a qualified CPA or state tax attorney familiar with the states involved.

Author note
In my practice working with remote employees and employers since 2020, early documentation and proactive payroll coordination are the actions most likely to prevent double filing and refunds delays. Staying ahead of withholding changes saves time and reduces audit risk.

Authoritative sources

  • Internal Revenue Service (IRS) guidance on federal filing and residency context: irs.gov
  • Tax Foundation analysis of state responses to remote work and residency enforcement: taxfoundation.org
  • State Department of Revenue sites for state‑specific residency and withholding rules