Overview
State residency rules define which state can tax you and which income it can tax. When you move, these rules — driven by physical presence, intent, and ties to a state — determine whether you become fully liable for your new state’s taxes, remain liable (in whole or part) to your old state, or face multistate filing requirements. Mistakes in handling residency after a move are a common source of unexpected tax bills and state audits.
(Author’s note: in my practice advising clients on moves between high-tax and no‑income‑tax states, I repeatedly see problems caused by incomplete documentation and lingering ties to the former state.)
Sources: IRS guidance on state residency and state tax agencies provide the legal framework; see IRS: Understanding State Residency Rules (https://www.irs.gov/businesses/small-businesses-self-employed/understanding-state-residency-rules).
Background and why it matters
States historically developed residency rules to protect their tax bases and fairly allocate taxing rights when people moved across borders. Each state sets its own standards — there is no single federal residency rule for state income taxes. That means the same set of facts can produce different outcomes depending on the states involved.
Why it matters:
- A resident is typically taxed on all income, regardless of where it’s earned.
- A nonresident is generally taxed only on income sourced to that state (wages earned in the state, rental income from property in the state, etc.).
- Part‑year residents split the year and pay resident tax for the period they lived in the state.
Because rules vary, what qualifies as a clean change of residency in one state may not in another. States also maintain audit teams focused on residency changes, especially when taxpayers move to no‑income‑tax states.
How do states determine residency (the common tests)
States use several overlapping concepts. Know which apply in the states you’re leaving and moving to:
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Physical‑presence or 183‑day tests: Many states apply a bright‑line rule — spending more than 183 days in the state (roughly half the year) creates a presumption of residency or statutory residency. This is common but not universal. Always verify the specific state statute or tax guidance.
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Domicile: Domicile is your fixed, permanent home — the place you intend to return to. You can have only one domicile. States look at where your primary home is located and the totality of facts showing intent.
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Statutory resident tests: Some states (for example, New York, California) have statutory tests that combine days present with a maintained permanent place of abode to treat you as a resident even if you claim a different domicile.
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Factors evidencing intent and ties: Driver’s license, voter registration, vehicle registration, primary bank accounts, family location, membership in local clubs, where you keep medical providers, work location, and ownership or retention of real property.
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Source rules: For nonresidents, states tax income sourced to the state — wages earned performing work there, rental or business income from sources within the state, and sometimes gains from property located in the state.
(See IRS guidance for an overview and check the destination and origin state tax department pages for exact rules.)
Practical examples from practice
1) Move from New York to Florida while keeping a house in NY
- Situation: Client moved to Florida, rented a condo in Miami, but kept a townhouse in Brooklyn, left personal effects in the Brooklyn home, and spent weekends there.
- Outcome: New York viewed the client as maintaining strong ties and treated them as a resident for part or all of the year. The client owed New York tax on income New York considered taxable despite their Florida address.
2) Remote work across states
- Situation: A taxpayer moved to Texas but continued working remotely for a company based in California and routinely traveled back for client meetings.
- Outcome: California taxed income sourced to California; the taxpayer had to file California returns and, depending on residency tests, possibly the former state as well. Remote and cross‑border work increases complexity; track days worked in each state.
These examples show the crucial role of documentation: utility bills, lease/mortgage, tax filings, and statements showing day counts are key to supporting a change of residency.
Who is affected
- Individuals who sell a home and relocate to reduce taxes (retirees or high‑income earners).
- Remote workers and digital nomads who split time across states.
- Seasonal migrants (“snowbirds”) who live part of the year in a warm state.
- Business owners and partners whose state of residence affects where pass‑through income is taxed.
Each group must understand both the state they leave and the state they enter; missteps can lead to double filing, unexpected liabilities, and audits.
Step‑by‑step: How to establish residency and reduce risk
- Change legal ties quickly: obtain a driver’s license or state ID, register to vote, and re‑register vehicles if required.
- Establish a primary home: sign a lease or close on a purchase and move the majority of personal possessions.
- Update financial and legal accounts: open local bank accounts, change billing addresses, and update health care providers and insurance.
- File a declaration of domicile where available: some states accept a recorded declaration of domicile (check state law) — this can be helpful but is not conclusive by itself.
- Sever key ties to the old state: sell or rent out old home, transfer memberships, and minimize time spent there.
- Maintain contemporaneous records: keep a day‑by‑day log of locations, travel, and work days; save utility bills, closing statements, and correspondence showing intent.
- Review tax withholding and estimated tax: update employer withholding and state tax withholding forms (W‑4 state equivalents) to reflect the new state.
- Consult a CPA or tax attorney before leaving: run projections for the moving year because partial‑year residency and source rules can create surprises.
Multistate filing and credits
If you are taxed by two states on the same income, many states permit a credit for taxes paid to another state for the same income, but rules differ. Credits usually apply to prevent double taxation, but you must file as required and claim the credit on the taxing state’s form. Do not assume credits eliminate every duplicate tax — the calculation and eligibility rules vary by state.
Documentation checklist (keep these for at least 4–7 years)
- Driver’s license/state ID and application date
- Voter registration and date
- Lease or purchase agreement and closing documents
- Utility bills, home insurance, and property tax bills
- Bank account openings and local payroll deposits
- Travel logs showing days spent in each state
- Employment records showing work location and remote work days
- Vehicle registration and insurance changes
In audits, well‑organized contemporaneous evidence typically matters more than retrospective explanations.
Common mistakes and misconceptions
- Believing a single document (e.g., new driver’s license) automatically establishes residency. No single act is usually decisive.
- Underestimating the importance of intent and ongoing ties, especially retained property or family in the former state.
- Ignoring state withholding when moving mid‑year; employers may continue withholding for the old state.
- Failing to plan for part‑year rules and source taxation in the move year.
Practical strategies I use with clients
- Make a relocation plan well before the move and document each step.
- Time the sale or rental of prior residence to reduce lingering ties if tax exposure is a major concern.
- Consider short‑term tax withholding changes and estimated tax adjustments for the move year.
- For high‑net‑worth individuals, analyze domicile factors (where the family intends to remain long term) and prepare a packet of evidence in case of audit.
Frequently asked questions
Q: Can I be taxed by two states in the same year?
A: Yes. If you were a resident of one state for part of the year and a resident or source taxpayer in another state, you may have to file both states’ returns and claim credits where allowed.
Q: Does moving to a no‑income‑tax state guarantee lower taxes?
A: Not necessarily. State income taxes are only one factor. Property taxes, local taxes, sales taxes, and other costs of living (and your continued tax ties to the old state) can offset expected savings.
Q: How important is the 183‑day rule?
A: It’s important in places that use it as a statutory test, but it’s not universal. Many states also consider domicile and totality of circumstances.
Resources and further reading
- IRS: Understanding State Residency Rules — https://www.irs.gov/businesses/small-businesses-self-employed/understanding-state-residency-rules (general federal overview and links to state resources).
- For practical planning and state‑specific rules, review the destination and origin state department of revenue pages and guidance.
- FinHelp related articles: State Residency Tests: How Moving Affects Your Tax Obligations, Establishing Residency for Tax Purposes After a Move, and State Residency Planning for Seasonal Migrants (Snowbirds).
Professional disclaimer: This article is educational and does not constitute individualized tax advice. State residency issues can be complex and fact‑sensitive; consult a CPA or tax attorney licensed in the relevant states for tailored guidance.
