Quick overview
If you split time, work remotely, move during the year, or keep ties in multiple places, more than one state can claim the right to tax some or all of your income. States use two broad concepts: domicile (your permanent home and intent to return) and statutory residency or source rules (days present in the state or income earned there). Learn the steps to establish where you owe tax, how to avoid double taxation, and what records to keep.
How states decide residency
States generally apply one or a mix of these tests:
- Domicile: Your legal, permanent home. You have only one domicile at a time. States look at where you keep your most important ties (primary residence, family, financial and social life, voter registration, driver’s license).
- Statutory residency / day-count tests: A state can treat you as a resident if you spend a set number of days there (commonly 183, but rules differ) and maintain a permanent place of abode. New York, for example, has a well-known statutory residency rule: 183 days plus a permanent place of abode can trigger residency (NY Dept. of Taxation) (see state resource links below).
- Source-of-income rules: Nonresidents are generally taxed on income sourced to the state (wages earned there, income from a business or rental located there).
States combine facts and intent. Physical presence alone does not always decide residency. Courts and revenue departments consider overall lifestyle and connections.
Sources: IRS state links and state revenue departments; Tax Policy Center analysis on multistate tax issues.
Common scenarios that create multistate tax exposure
- Commuting and cross-border work
- If you live in State A but work in State B, State B will usually tax wages earned there. Your home state may tax all worldwide income and offer a credit for taxes paid to State B.
- Remote work for an employer in another state
- Remote work changed the rules’ impact. Some states tax where the work is performed (where you are physically located when working); others have employer withholding rules that can cause unintended withholding in the employer’s state.
- Multiple homes (snowbirds and seasonal migrants)
- Older taxpayers that spend winters in one state and summers in another must evaluate domicile (intent) and day counts. States like Florida have no individual income tax, so establishing domicile there matters for reducing tax.
- Moving partway through the year
- You will likely file part‑year resident returns in both states for the year of the move, reporting income earned while a resident in each.
- Business owners and rental owners
- Business income and rental income are sourced where the activity or property is located; that can create nonresident filing requirements.
Practical examples (edited, anonymized client scenarios)
-
A taxpayer moved from Massachusetts to Florida in July. Massachusetts required a part‑year return because the taxpayer was domiciled there and earned income while living in the state. Florida has no individual income tax, so the taxpayer’s post‑move wages were not taxed at the state level (Florida Dept. of Revenue).
-
A remote worker living in New Jersey performed all work from home but occasionally traveled to Pennsylvania for client meetings. Pennsylvania taxed the income sourced to work performed there; New Jersey allowed a credit for taxes paid to Pennsylvania to avoid double taxation.
These examples reflect typical outcomes but each case depends on facts, state statutes, and administrative rules.
How to determine your filing obligations — a stepwise approach
- Identify where you were domiciled during the year. Document your intent (change of address notifications, voter registration, driver’s license change, declaration to tax authorities if available).
- Count days physically present in each state. Keep a dated calendar, travel logs, employer timesheets, or phone/GPS records. Many states start counting partial days.
- Identify income sources by state (wages, business income, rental, retirement income) and where services were performed.
- Check state rules for statutory residency and part‑year filing requirements. Use the state revenue department website for specific guidance.
- Determine whether your home state offers a credit for taxes paid to another state (commonly available for wages taxed by two states).
- File resident, nonresident, and/or part‑year returns as required. Attach required schedules to allocate income correctly.
Author’s note: In my practice, a reliable day‑count spreadsheet and copies of travel itineraries reduce audit stress. When in doubt, document the why behind each tie to a state.
Credits, allocations, and avoiding double taxation
- Resident states typically tax all income but grant a credit for taxes paid to another state on the same income to prevent double taxation. The calculation and allowable credit vary by state.
- Nonresident returns require allocating and apportioning income sourced to the state. Wages are usually allocated to the state where the work was performed; business income may be apportioned by payroll, sales, or property formulas.
- Reciprocal agreements: Some neighboring states have reciprocal withholding agreements (e.g., PA/NJ historically) allowing residents to avoid state withholding from the work state by filing an exemption form with the employer.
Check your state revenue department and consult a tax pro to apply credits and allocations correctly (Tax Policy Center; state DOH/Revenue sites).
Withholding, estimated taxes, and practical filing tips
- Review employer withholding: Employers may withhold taxes based on payroll location or employer policy. If you work remotely, confirm your employer is withholding for the correct state to avoid under/over withholding.
- Estimated tax payments: If you expect to owe tax to a nonresident state (for example, rental income), make estimated payments to that state.
- File nonresident returns when you have in‑state income even if no tax is due after credits—some states require a return to claim refunds or credits.
Records to keep and evidence of intent
Maintain the following to support your residency position:
- Travel logs, calendars, and scanned boarding passes
- Lease agreements, mortgage documents, property tax bills
- Utility bills, voter registration, driver’s license and vehicle registration
- Employment records showing where services performed
- Bank and investment statements showing primary address
- Social ties: location of spouse/children, memberships, medical providers
These items are the evidence auditors look for when a state questions residency.
Audit risk and who enforces the rules
State revenue departments audit residency claims. High‑audit states include those with high tax rates or large populations of former residents (e.g., New York, California). Residency audits examine both objective facts (days, property) and subjective intent. If audited, be ready to produce the records above.
Professional strategies (practical, ethical, and documentation-focused)
- If you plan to change domicile for tax reasons, change facts that show intent: move your household, register to vote, change your driver’s license, and shift financial accounts. Do this contemporaneously—states look for patterns.
- Keep a contemporaneous journal during transition years that explains the reasons for moves and the dates.
- Consider timing of major events: selling a home, leasing, or changing children’s schools can all support a domicile change.
Note: Aggressive strategies designed solely to avoid tax without substantive lifestyle changes can increase audit risk.
Where to get authoritative help
- State revenue department websites for each state give rules, forms, and guidance (start with your state’s official site). The IRS provides links to state tax agencies (IRS State Links).
- For commentary and policy context, consult Tax Policy Center and Tax Foundation analysis on multistate taxation.
- Consider a CPA or state‑tax specialist when your facts are complex (multiple residences, business operations across states, high income, or planned domicile change).
Related FinHelp resources:
- Read our guide on State Residency Tests: How to Determine Where You Owe State Taxes for a step‑by‑step residency test checklist.
- If you work remotely, see Remote Work and State Residency: Avoiding Multistate Tax Surprises for withholding and employer considerations.
Closing checklist — before you file
- Confirm domicile and statutory residency status in each state.
- Count and document days in each state.
- Allocate income by state of source.
- Verify withholding and make estimated payments where needed.
- File resident, part‑year, or nonresident returns correctly and claim credits to prevent double taxation.
Professional disclaimer
This article provides educational information only and is not a substitute for personalized tax or legal advice. State tax rules change; consult your state revenue department or a licensed tax professional to confirm how laws apply to your situation.
Authoritative links and sources
- IRS: State Government Links and Information, https://www.irs.gov
- Tax Policy Center: analysis on state and local taxation
- Individual state revenue departments (see links on IRS state pages)
