Overview

Moving between U.S. states can change where you owe income tax. “State residency and income tax” is the set of rules states use to decide whether you are a resident (subject to tax on most income), a part-year resident (taxed on income while living there), or a nonresident (taxed only on income sourced to that state). States use different tests — domicile, physical presence, and connections/ties — and many apply credits or withholding rules to avoid double taxation.

In my 15 years advising clients on moves, I’ve seen the same costly mistakes: failing to document travel days, not changing key records (driver’s license, voter registration, mailing addresses), and overlooking income sourced to the prior state. Proper planning and documentation reduce audit risk and unexpected tax bills.

Why it matters

  • A change of state can change your effective tax rate (some states have no income tax; others have top rates over 10%).
  • You may need to file returns in two or more states for the same year (split-year filing or nonresident filings).
  • Employers and payroll departments may withhold the wrong state tax if you move mid-year, creating cash-flow surprises.

Authoritative guidance on state vs. local tax varies by state; for federal context see IRS tax topics (IRS Tax Topic 152) and state tax agency rules (varies by state) (IRS: https://www.irs.gov/taxtopics/tc152). The Tax Policy Center and state revenue departments are also useful resources for state rules.

Common residency tests explained

  • Domicile (permanent home): Your domicile is the state you intend to return to and treat as your permanent home. Changing domicile requires actions that show intent: selling or renting your old home, buying a new home, changing voter registration, and moving personal belongings.
  • Physical presence (days in state): Many states use a day-count test — commonly called a “183-day” rule — to create a presumption of residency. If you spend more than half the year in a state, that state may treat you as a resident. Not every state uses exactly 183 days; check the state rules.
  • Statutory/Connections test: States evaluate ties such as driver’s license, voter registration, location of family, bank accounts, professional licenses, and where you work. Strong ties can outweigh number-of-days calculations.

Example: New York and California both rely heavily on domicile plus day-counts. Florida and Texas have no state income tax, but moving there may require clear steps to sever ties with the old state to avoid continued taxation.

Split-year and multi-state filings

  • Split-year resident: If you move mid-year, most states let you file as a part-year resident in each state and apportion income to the time you lived in each state. That generally means reporting all income for the year to the federal government but allocating taxable income across states.
  • Nonresident tax: A state where you are a nonresident can still tax income sourced to that state (for example, wages performed there, rental income from property located there, or business income).
  • Credits for taxes paid: Many states offer credits to residents for taxes paid to another state on the same income to reduce double taxation, but rules and limitations differ by state.

See our practical guide on split-year filing for details: Tax Filing Considerations for Split-Year Residency (https://finhelp.io/glossary/tax-filing-considerations-for-split-year-residency/).

Remote work and withholding — modern complications

Remote and hybrid work has created new nexus and withholding challenges. Employers may withhold state tax where the employer is located, where the work is performed, or per employee residence rules. If you work remotely after moving, you must confirm with payroll how withholding will be handled and whether you need to file nonresident returns for the employer’s state.

For employers and contractors, nexus rules may create business tax obligations in new states. See our article on remote worker nexus and multi-state compliance: Remote Worker Nexus: Complying with Multi-State Tax Rules (https://finhelp.io/glossary/remote-worker-nexus-complying-with-multi-state-tax-rules/).

Practical steps to establish or change residency

  1. Set a clear move date. Use that date consistently on tax forms and official documents.
  2. Change your driver’s license, vehicle registration, and voter registration promptly.
  3. Update mailing addresses for banks, retirement accounts, and financial institutions.
  4. Move personal belongings and list actions showing you’ve abandoned the previous domicile (sell or rent the old home, change utility accounts).
  5. Register to vote and join local community organizations in the new state.
  6. Keep a day-count log: record the state where you sleep each night, and keep travel receipts, boarding passes, or calendar entries.
  7. Review employer withholding and request state withholding changes in writing.
  8. If you have rental or business income, record where the activity occurs and seek professional help to allocate income properly.

Documenting these steps is essential; authoritarian state auditors look for patterns of intent, not just a single changed address.

Documentation checklist (what to keep)

  • Signed lease or deed in the new state.
  • Utility bills showing service start dates.
  • Driver’s license and vehicle registration change records.
  • Voter registration confirmation.
  • Employment records indicating work location and date changes.
  • Detailed day-count calendar and travel logs.
  • Bank and investment account address changes.
  • Mail forwarding and USPS confirmation (if used).

I recommend keeping this documentation for at least three years after the move — longer if you have complex income sources that cross states.

Real-world scenarios and mistakes I’ve seen

  • Misunderstanding source income: A client moved to a no-income-tax state but continued receiving royalties from the previous state. They needed to file as a nonresident and pay tax on that sourced income.
  • Payroll withholding mismatch: An employee moved mid-year but payroll continued withholding tax for the old state. This created a withholding overpayment and a delayed refund process.
  • Failing to sever ties: Another client kept a primary bank account, out-of-state license, and active gym membership in the old state; auditors used those ties to argue domicile hadn’t changed.

How to reduce risk of double taxation

  • File part-year returns where allowed and claim credits for taxes paid to other states when eligible.
  • If possible, coordinate the move timing around pay schedules and major income events (bonuses, retirement distributions) to avoid large tax hits in the prior state.
  • For high-net-worth individuals, create a comprehensive move plan documented with legal and tax professionals to show domicile change.

When to get professional help

Consult a qualified tax advisor when you have any of the following:

  • High income or complex income sources (S corps, partnerships, rental property across states).
  • Large stock option exercises or retirement plan distributions near the move date.
  • Potential audits or notices from a state revenue department.
  • Dual-state residency disputes or when a state audits your residency status.

If a state sends a residency audit letter, respond promptly and provide the documentation listed above. In my practice, early, organized responses often close audits without additional tax assessments.

References and further reading

Internal resources on FinHelp:

Professional disclaimer

This article is educational and reflects general tax principles as of 2025. It is not personalized tax or legal advice. For guidance tailored to your situation, consult a qualified tax advisor or an attorney licensed in the relevant state(s).

Quick takeaway

When you move, residency and income tax depend on where you are domiciled, how many days you spend in state, and the strength of your ties. Plan the move, document it thoroughly, adjust payroll withholding, and seek professional help for complex situations to avoid surprise tax bills.