Quick overview

Relocating across state lines often changes the state tax that should be taken out of your pay. That can mean more take-home pay (if you move to a no-income-tax state) or less (if you move to a higher-tax state), and it can create a mid-year split in state income that you must report correctly when filing. In my 15 years advising clients on moves, the most frequent problems are failing to notify payroll promptly and not accounting for part-year residency or reciprocity rules.

Step-by-step checklist for updating withholding after a move

  1. Notify your employer and update payroll records as soon as you establish residency. Employers generally depend on the address and state withholding form you provide to calculate state withholding.
  2. Complete the appropriate state withholding form and a new federal Form W-4 if your overall tax picture changed. For federal guidance, the IRS Tax Withholding Estimator and W-4 instructions are the primary resources (IRS.gov).
  3. Recalculate expected annual tax liability, combining federal and both states’ projected tax for the year if you earned income in two states.
  4. If tax liability is likely to increase, increase withholding or make estimated quarterly payments (IRS Form 1040-ES and your state’s estimated tax forms).
  5. If your move reduces state tax (for example, moving to Florida or Texas), check whether you should lower withholding so you don’t over-withhold all year.
  6. Keep records proving the date you became a resident of the new state (lease, utility bills, driver’s license). These matter if residency becomes disputed.

Employer and payroll responsibilities

Employers with employees who move must follow state payroll rules. That usually means:

  • Updating the employee’s payroll profile to reflect the new state withholding form and state code.
  • Calculating withholding based on the new state’s tax tables and the employee’s elections.
  • Ensuring tax deposits and returns use the correct jurisdiction for the pay period.

If the company has multi-state payroll systems, changes should be effective for the first payroll after you provide the paperwork. If not, you may need to request an adjustment or make estimated payments.

Special situations explained

  • Remote workers / telecommuters: Working from a new state can create source-of-income issues. Several states tax where you perform the work, so remote employees should understand nexus and withholding. See our guide on remote worker payroll compliance for more detail: “Remote Worker Payroll Compliance After Multi-State Work Arrangements” (https://finhelp.io/glossary/remote-worker-payroll-compliance-after-multi-state-work-arrangements/).

  • Reciprocity agreements: Some neighboring states have reciprocity (e.g., PA/MD/WV arrangements) that let you avoid withholding in the work state if you live in the other. Check your new state’s tax site; reciprocity requires filing a state exemption form with your employer.

  • Mid-year moves: If you earn wages in two states, you’ll likely file part-year resident returns in both states. Our walk-through “Filing Taxes When You Move State Mid-Year” explains how to apportion income and credits (https://finhelp.io/glossary/filing-taxes-when-you-move-state-mid-year/).

Calculating how much to adjust

  1. Start with the annualized income for the year and split it by state for the periods you lived/earned there.
  2. Use your new state’s withholding tables or online calculator. Many states publish withholding calculators or worksheets—check the state revenue department website.
  3. Add expected federal tax changes to avoid federal under-withholding if wages changed.

If you have other income (self-employment, rental, investments), also estimate quarterly payments. As the IRS explains, you must either pay enough estimated tax or have sufficient withholding to avoid underpayment penalties (see IRS Publication 505, Tax Withholding and Estimated Tax).

Examples from practice

  • Example A: Client moved from New York to Texas in April. Because Texas has no state income tax, their state withholding stopped, increasing their take-home pay. However, they also had freelance income for the remainder of the year, so I recommended either increasing federal withholding on their W-4 or making quarterly estimated payments to cover the added self-employment tax.

  • Example B: A couple moved from a no-income-tax state to California late in the year. They needed more state withholding right away because California’s top marginal rates and progressive brackets produce a bigger annual tax bite than they previously anticipated.

Common mistakes and how to avoid them

  • Assuming payroll will update automatically: Always submit a new state withholding form and confirm with HR or payroll.
  • Ignoring part-year returns: You may owe tax to two states for the same year if you worked in both—don’t assume one state’s withholding covers both liabilities.
  • Forgetting estimated taxes: If withholding drops but other taxable income remains, estimated payments may be necessary.

When you may need to make estimated payments

Make quarterly estimated payments if:

  • Withholding cannot be increased quickly enough to cover higher tax liability.
  • You receive non‑wage income (self‑employment, dividends, capital gains) not subject to withholding.
    Use IRS Form 1040‑ES for federal estimates and your new state’s estimated tax forms for state-level payments. The IRS provides details at https://www.irs.gov/forms-pubs/about-form-1040-es (IRS).

Documentation and residency proof

States look at objective facts to determine residency: where you vote, your driver’s license, where you spend most nights, and where you maintain a home. Keep copies of lease agreements, utility bills, and your new driver’s license to support the date you changed residency.

Useful resources (updated to 2025)

Internal guides you may find helpful

Practical tips I use with clients

  • Re-run the withholding calculation after the first two paychecks in your new state — payroll systems sometimes apply state codes inconsistently for the first pay period.
  • If you expect a large tax increase, change federal withholding on the W‑4 and check the state withholding form so both federal and state withholding are aligned.
  • Keep an annual checklist: move date, new driver’s license, voter registration, lease/closing docs, payroll notification, and copies of the new state withholding form.

FAQs

Q: What if I forget to change my withholding until December?
A: You can still increase withholding for the remaining pay periods to cover the shortfall or make an estimated payment. If taxes remain unpaid by filing time, you could face underpayment penalties.

Q: Who pays the penalty for incorrect state withholding if payroll used the wrong state?
A: Ultimately, the taxpayer is responsible for correct tax payments. You should work with payroll to correct withholding retroactively if possible; if payroll errors caused under-withholding, employers sometimes assist with corrections, but that’s not guaranteed.

Q: How do reciprocity agreements affect me?
A: Reciprocity lets residents of one state request exemption from withholding in the work state. It does not eliminate filing responsibilities—check state rules and file the required exemption form with your employer.

Professional disclaimer

This article is educational and does not replace tailored tax advice. Rules about state residency, reciprocity, and withholding change over time; verify current state procedures and consult a tax professional for your specific situation. For federal guidance, consult the IRS website (irs.gov).

Bottom line

When you relocate across states, act early: update payroll and state withholding forms, estimate combined tax for the year, and make adjustments (withholding or estimated payments) to avoid surprises. Prompt communication with your employer and keeping documentation of residency will reduce the likelihood of issues when you file.