Why state residency matters

Where a state considers you a resident affects: which state income tax returns you must file, how much of your income is taxable by that state, whether your employer must withhold state taxes, eligibility for state credits and programs, and exposure to residency audits. Getting residency right can save thousands in state income tax — and getting it wrong can trigger back taxes, penalties, and interest.

Two core tests states use

Most states use some combination of two legal concepts:

  • Domicile (intent) test: Domicile is the place you intend to make your permanent home. States evaluate objective indicators of intent such as voter registration, driver’s license, vehicle registration, where your family lives, where you spend holidays, where you keep the bulk of your personal belongings, and whether you have a permanent home available to you year-round. (See: California Franchise Tax Board: residency rules; New York State Department of Taxation and Finance: statutory resident rules.)

  • Statutory (day-count) test: Many states treat people as residents if they spend more than a statutory number of days in the state during the tax year — commonly 183 days. Day-count rules vary by state and by special categories (students, military, commuters). Examples: New York and several other states use a 183-day threshold, but the rule’s application differs by state. (New York: >183 days plus maintaining a permanent place = statutory resident.)

Both tests can apply at once: you can be domiciled in one state while meeting the day-count test in another, creating dual-residency disputes.

Common situations and examples

  • Telecommuters and remote employees: If you live in State A but regularly work from State B (or travel frequently), State B may claim you as a resident if you meet its day-count test or if your activities create residency. In my practice I’ve seen remote workers unintentionally trigger residency after spending additional weeks at a client site or family home.

  • Mid-year movers and part-year residents: When you move, both your old and new state will usually require part-year returns. Income is allocated based on where it was earned while you were a resident. Keep track of the exact move date and document change-of-residence actions (lease termination, new home purchase, voter registration).

  • Seasonal residents and retirees with multiple homes: Owning a second home does not automatically make you a resident of that state — but substantial use of that home (and other domicile indicators) can. Retirees who spend long stretches in different states should document where they intend to be their permanent home.

Real example: A client told me he moved to a no-income-tax state and kept a summer home in his old state. He continued to take family medical care, vote, and keep his car registered in the old state. The state successfully argued he remained domiciled there and assessed tax for that year.

How states count days

  • Full-day rule: Many states count a day if you are physically present for any part of the day.
  • Midnight-to-midnight or part-day rules: Some states have specific rules for counting days; check the state statute or guidance.
  • Exceptions: Active-duty military on orders, full-time students, or commuting workers may be treated differently.

Document travel dates: maintain a calendar, travel records, remote work logs, and contemporaneous notes. Electronic evidence (flight itineraries, entry logs, swipe records, meeting invites) is often used in audits.

How to establish (or rebut) domicile

States look for a preponderance of objective evidence of your intent to make a place your permanent home. Steps that help establish a new domicile:

  • Change voter registration and actually vote in the new state.
  • Get a driver’s license or state ID and register your vehicle in the new state.
  • Change your mailing address with the U.S. Postal Service and on financial accounts.
  • Move close family members (if applicable) and shift primary bank relationships.
  • Sell or lease out the old home; cancel local subscriptions and terminate local memberships.
  • Establish local ties: new doctor, dentist, religious or community organizations.

To rebut residency claims, assemble contemporaneous evidence showing your intent and that your presence in the claiming state was temporary (work assignments, travel for care, caregiving, or vacations).

Tax filing and credit mechanics

  • Part-year resident returns: When you move mid-year you’ll typically file part-year returns in both states and allocate income to the period you were a resident in each.
  • Nonresident returns and withholding: States can tax income sourced to them even if you’re a nonresident (wages earned in the state, rental income from state property, business income). Employers may withhold for the state where work is performed.
  • Credits to avoid double taxation: Most states offer a credit for taxes paid to another state on the same income (check state-specific rules and limits). The mechanics differ widely between states; retain record of tax paid elsewhere to claim the credit.

Audits: what triggers them and how to respond

Triggers:

  • Large changes in reported residency without corroborating actions.
  • High earnings combined with lifestyle signals inconsistent with stated residency.
  • Third-party tips or audit matches from other agencies.

If audited, states typically request documentation proving domicile and days of presence. Provide organized records: calendars, bills showing physical address, lease or purchase agreements, registration documents, and travel receipts. Work with a tax attorney or CPA experienced in state residency audits; many audits are resolved with evidence rather than litigation.

Practical recordkeeping checklist

  • Daily presence log or calendar (document purpose of stays).
  • Lease/mortgage documents, utility bills, and insurance policies showing primary residence.
  • Driver’s license, voter registration, car registration copies.
  • Employment records showing where work was performed and any telecommuting agreements.
  • Bank statements, club memberships, subscription cancellations.
  • Flight itineraries, hotel receipts, and meeting records for business travel.

Common mistakes to avoid

  • Assume domicile is fixed forever — it is fact-specific and can change.
  • Rely only on one or two evidence points (e.g., bought a home) while keeping strong ties to the old state.
  • Forget to change informal ties like where your children go to school or where you keep medical providers.
  • Neglect to coordinate with your employer on withholding, especially if you work across state lines.

Special categories and nuances

  • Students: Full-time students living away from home often remain domiciled in parents’ state, but check state rules.
  • Military: Servicemembers generally keep domicile of origin for state tax purposes while on active duty, but there are exceptions for spouses and state-specific rules.
  • Reciprocity agreements: Neighboring states sometimes exempt nonresident wages if a reciprocal agreement exists (common in the Mid-Atlantic and Midwest).

Useful authoritative resources

Related FinHelp resources

Final practical tips

  1. Track days and keep contemporaneous records — calendar notes made at year-end are weaker than daily logs.
  2. Make clear, objective changes when you change domicile (license, voter registration, close accounts back home).
  3. Coordinate with your payroll team about withholding and residency declarations.
  4. If you face an audit or uncertain facts, consult a state tax specialist early — the cost of preemptive advice is usually less than resolving an audit.

Professional disclaimer: This article is educational and does not substitute for personalized tax advice. State residency rules vary and change; consult a qualified tax advisor or the applicable state tax authority for your situation. References cited are current as of 2025.