What Should You Do About State Withholding After Moving Mid-Year?

Moving to a new state partway through the year changes where you owe state income tax, how much should be withheld from paychecks, and sometimes which state can tax your wages at all. This article gives a practical, step‑by‑step plan to update withholding, limit surprise tax bills, and resolve multistate withholding problems. I’ve worked with clients who underestimated midyear moves and faced large balances due; the right timing and documentation usually prevents that.

Quick checklist (start here)

  • Notify payroll/employer immediately of your move and new state residency date.
  • Submit any required state withholding form (many states use their own certificate in addition to the federal W‑4).
  • Recalculate projected state tax for the year; adjust withholding or make estimated payments if needed.
  • Keep copies of move documentation and final paystubs from both states.
  • If you overpaid in the old state, request a refund or file a part‑year return.

How residency and wage sourcing usually work

States tax residents on most income regardless of where it was earned; nonresidents are typically taxed only on income sourced to that state (wages earned for work performed there). If you move mid‑year you are often a part‑year resident in both states and must file part‑year resident returns for each state where you lived and earned income during the year. Rules vary by state, so check the state department of revenue for details.

For remote employees, the employer sometimes withholds for the employer’s location instead of the employee’s state — that can create multistate withholding errors. Many states also have reciprocity agreements that exempt withholding for commuters who live in one state and work in another; confirm whether a reciprocity rule applies to your situation.

(See the practical checklist for remote employees here: State Tax Withholding for Remote Employees: Practical Checklist).

Step‑by‑step: What to do the day you move and the following weeks

  1. Tell payroll immediately. Give your new address and the effective date of your move. Payroll systems often require a residency change to withhold the correct state tax.

  2. Complete any required withholding certificates. The federal W‑4 controls federal withholding; many states have their own withholding certificates (for example, VA‑4 in Virginia). Don’t assume the federal W‑4 alone updates state withholding — ask payroll which state form they need. For a federal W‑4 walkthrough, see this guide: A Step‑by‑Step Walkthrough of Form W‑4 Changes and Withholding.

  3. Recalculate your combined year‑to‑date state tax. Add the tax already withheld in your old state to the projected tax that should be withheld in your new state for the remainder of the year. Use each state’s tax tables or online withholding calculators to estimate liability.

  4. Make up shortfalls quickly. If the math shows you’ll be under‑withheld for the year, increase withholding at your current employer (ask payroll to withhold an additional flat dollar amount per paycheck) or make an estimated tax payment to the new state to avoid underpayment penalties.

  5. Preserve proof of the move. Keep copies of lease or purchase closing statements, change‑of‑address confirmations with the post office, start/stop dates from employers, and final paystubs showing year‑to‑date wages and withholding. These documents help when allocating wages between states or requesting refunds.

Part‑year resident returns and wage allocation

When you file, most states expect you to:

  • File a part‑year resident return for both states where you lived (if you were a resident in both during the tax year),
  • Allocate wages by the period you lived in each state, and
  • Claim credits for taxes paid to another state when appropriate.

If you worked in State A while you lived there and then moved to State B and continued the same job remotely, wage allocation typically follows the days or pay periods you worked in each state. States vary in the method they accept for allocation; use your pay stubs and employer verification when completing returns.

Remote work, employer location, and the “convenience of the employer” rule

A special complication is when a state applies a “convenience of the employer” rule (for example, New York). Under that rule, wages earned while working remotely may still be taxable to the employer’s state unless working remotely was for the employer’s necessity. If you split time between states, understand whether your new or prior employer’s state uses such rules and how they impact sourcing of your wage income.

Estimated payments and safe‑harbor rules

If withholding won’t cover expected tax, you can make estimated tax payments to the state. The IRS safe‑harbor rules for federal underpayment penalties also matter: you generally avoid federal underpayment penalties if you pay at least 90% of this year’s tax or 100% of last year’s tax (110% if your adjusted gross income was over $150,000). State underpayment rules differ but often follow federal guidelines — check your state’s rules and IRS Publication 505 for federal guidance (IRS Publication 505: Tax Withholding and Estimated Tax, https://www.irs.gov/pub/irs-pdf/p505.pdf).

Common problems and how to fix them

  • Employer withheld for the wrong state. Ask payroll for corrected withholding going forward and request a refund of amounts withheld by the old state if you were nonresident or moved on a certain date; you may need to file a part‑year resident or nonresident return to claim the refund.

  • W‑2 shows wrong state wages or withholding. Employers can issue a corrected W‑2 (Form W‑2c). Start the conversation early — payroll departments can take time to correct multistate W‑2s.

  • Owing a large balance at filing. If you can’t pay in full, consider an installment plan with the state to avoid collection actions. Also check whether you qualify for credits that reduce state tax.

Real examples (illustrative)

  • Example A: You earned $40,000 while living in State X (no state income tax) through June, then moved to State Y (taxed) and earned $60,000 from July–December. If your employer didn’t withhold State Y tax after your move, estimate State Y tax on the $60,000 and either adjust withholding or make estimated payments for the remaining months to avoid a balance due.

  • Example B: You live in State M but work for an employer in State N that has reciprocity with State M. You must submit the reciprocity exemption form to State N’s payroll team to stop State N withholding and ensure withholding happens (if applicable) for State M.

Records to keep

Save these for at least three years after filing:

  • Final pay stubs from the old employer showing year‑to‑date wages and state withholding,
  • First pay stubs in the new state showing changed withholding,
  • A copy of any state withholding certificates you completed,
  • Proof of the date you changed residence (lease, closing statement, bills),
  • Any correspondence with payroll or the state revenue department.

Professional tips I use with clients

  • Move payroll first. If you can, complete state withholding forms before your first paycheck from the new location; that reduces the need for corrective action.
  • Use extra withholding rather than estimated payments if you prefer automatic payroll collection; payroll withholdings reduce the chance of missing a payment.
  • If you’ll have significant bonus or lump‑sum pay after moving, set a flat additional withholding for that check — lump payments can trigger withholding at supplemental rates that don’t reflect your actual tax bracket.
  • When remote work is involved, ask HR whether payroll systems use the employee address or employer location to set state withholding and get that policy in writing if possible.

When to get professional help

  • You have high income or complex multistate income streams (part‑year resident + nonresident wages + self‑employment).
  • Your employer resists correcting withholding or issuing a W‑2c.
  • You face potential penalties or large balances due.

A CPA or tax attorney familiar with multistate taxation can save time and money; in my practice, clients often avoid bigger problems later by addressing withholding issues promptly.

Useful resources and next steps

  • IRS Publication 505, Tax Withholding and Estimated Tax: https://www.irs.gov/forms-pubs/about-publication-505 (federal guidance on estimated payments and safe harbor).
  • State revenue department websites for specific withholding certificates and reciprocity rules.

For more on W‑4 timing and how federal withholding differs from state withholding, see our walkthrough: A Step‑by‑Step Walkthrough of Form W‑4 Changes and Withholding.

And for payroll policies and correcting multistate mistakes, read: Resolving Multistate Withholding Errors After an Employee Move.

Professional disclaimer: This article is educational and does not replace personalized tax advice. Rules vary by state and change over time; consult a qualified tax professional or the state revenue department for guidance specific to your situation.