State tax residency and when a move makes sense for your taxes
Understanding state tax residency is the first step before you consider moving for tax reasons. Each state sets its own rules about who counts as a resident, who owes income tax, and what evidence supports a change of domicile. Making a move solely to reduce taxes can work—but only if you legally establish your new residency and maintain the records to prove it.
How states typically decide who is a resident
States use a combination of tests. The three most common factors are:
- Domicile: Your legal home — where you intend to return. This is the most important factor for many states (California and New York emphasize domicile). (See California Franchise Tax Board and New York State Department of Taxation and Finance guidance.)
- Statutory/Day-count rules: Many states apply a “183-day” or similar test that treats you as a resident if you spend more than half the year there. This is not universal and may be only one factor. (Refer to state statutes; 183 days is a common rule of thumb, not an absolute federal rule.)
- Connections or “ties”: Where you hold a driver’s license, where you register to vote, where your family lives, location of vehicles, bank accounts, professional licenses, club memberships, and where you spend holidays.
Because rules vary, check state-specific guidance before acting. The IRS covers federal residency differently; states have independent authority for state taxes (IRS.gov). For more detail on tests states use, see our glossary entry on Residency Tests Explained: Determining Your State Tax Home.
When a move can make financial sense
A move tends to make sense when the projected long-term tax savings exceed the tangible and intangible costs of relocating and defending your change of residency. Typical scenarios:
- Moving from a high-rate state (e.g., California or New York) to a no-income-tax state (e.g., Florida, Texas, Nevada) where you anticipate staying long-term.
- Retirees who will rely on fixed income and can reduce state income tax on pensions, Social Security, or withdrawals.
- Remote workers who can legitimately establish physical and legal ties to a low-tax state and spend most of the year there.
In my practice advising clients for 15+ years, moves to states with no income tax yielded large savings for high earners and business owners, but the tax win often required careful documentation and changes to daily life (licenses, mail, voting, business registrations).
Step-by-step checklist to legitimately change residency
- Establish a primary physical home: buy or lease and spend significant time there. Avoid keeping a furnished apartment in the old state that could be construed as a continued home.
- Move personal belongings and change mailing addresses: forward mail and move major possessions.
- Get a state driver’s license and register vehicles promptly.
- Register to vote and actually vote in your new state.
- Update legal documents: wills, powers of attorney, medical directives, and estate planning documents to reflect new domicile.
- Move primary banking relationships and credit card billing addresses; open local accounts.
- Change professional registrations and memberships (bar, medical licensure, club memberships) if applicable.
- Transfer your primary healthcare providers where possible; keep receipts and appointment records.
- File state tax returns correctly for the year of the move (part-year resident or nonresident rules). See our guide on Filing State Returns After You Move: Residency and Part-Year Rules.
- Keep a contemporaneous calendar and travel logs showing days spent in each state.
Completing the checklist doesn’t guarantee success, but it creates a consistent record that states look for during audits.
Evidence states commonly request in audits
During residency audits, states typically request:
- Detailed calendars, credit-card statements, and flight logs proving presence on specific days.
- Utility bills showing sustained occupancy in the claimed domicile.
- Lease or mortgage documents, home insurance, and property tax records.
- New state driver’s license, voter registration, and vehicle registration.
- Employment records and where work was performed, especially for remote workers.
Prepare digital and paper copies of everything. In my experience auditing-friendly documentation is often the difference between a successful residency change and an expensive dispute.
Special rules: part-year residents, split-year returns, and reciprocal agreements
If you move mid-year you’ll likely file as a part-year resident in both states for that tax year. Each state has specific rules for apportioning wages and taxable income. Some neighboring states have reciprocal agreements for withholding on wages (common in Mid-Atlantic states). Review state forms and instructions carefully; incorrect filing can trigger audits and amended returns.
For more on part-year filing and split-year considerations, see our article on State Tax Residency Moves: Costs, Timing, and Tax Traps.
Common pitfalls and audit triggers
- Keeping a family home in the old state, especially if family members remain.
- Spending more than 183 days in the old state, even informally.
- Maintaining strong ties in the old state (business interests, club memberships, or social life) without similar ties in the new state.
- Not updating driver’s license, voter registration, and vehicle registration promptly.
States like California and New York are known for aggressive residency audits. If you earn high income or have substantial business ties, expect extra scrutiny (New York State Department of Taxation and Finance guidance; California Franchise Tax Board). Keep evidence and consult a CPA when audit letters arrive.
Beyond state income tax: other financial consequences
A move affects more than income tax:
- Property tax: Rates and assessment rules differ widely.
- Estate and inheritance taxes: Some states have estate or inheritance taxes when you die or when property is situated in-state.
- Sales and excise taxes: These affect ongoing cost of living.
- Health and public benefits: Medicaid eligibility and local programs can change with residency.
Weigh total tax and living-cost changes, not just marginal income tax differences.
Remote workers and multistate income
Remote work has complicated state taxation. Employers may withhold for the employee’s work state or the employer’s state. If you work from multiple states, apportioned wages may create multistate filing obligations. Keep timesheets and employer statements; consider an employer’s payroll practices when evaluating the move. See our resources on remote-worker rules and withholdings for practical steps.
Cost–benefit analysis: when the math makes sense
Estimate:
- Upfront costs: moving expenses, transaction costs on real estate, business re-registration fees.
- Ongoing savings: annual state income tax reduction, potential property tax differences.
- Risk costs: potential audit adjustments, penalties, and professional fees to defend your position.
A simple payback calculation (annual tax savings divided by one-time costs) helps decide if a move is worthwhile. For many high earners the payback period is short; for modest incomes the move may not justify other costs.
FAQs (short answers)
- How strict is the 183-day rule? Many states use it as part of their test, but domicile and ties often override day counts. Treat 183 days as a guideline, not a guarantee.
- Can I keep property in the old state? Yes, but retaining significant possessions or a furnished residence increases audit risk.
- Will moving affect my estate plan? Yes—update wills and trusts and check state estate tax rules.
Professional tips
- Start the change early: Establish multiple indicators of domicile and keep them consistent.
- Use contemporaneous logs: A calendar that shows where you slept each night is one of the most persuasive pieces of evidence.
- Talk to a CPA and an attorney: Tax consequences intersect with estate, business, and employment law.
Sources and further reading
- IRS general information (IRS.gov) — for federal tax context and distinctions between federal and state residence rules.
- California Franchise Tax Board — residency guidance and audit procedures.
- New York State Department of Taxation and Finance — residency rules and audit risks.
- Consumer Financial Protection Bureau and Tax Policy Center — context on state-tax policy and consumer effects.
Disclaimer
This article is educational and does not provide personalized tax or legal advice. State tax residency rules are fact-specific and change over time. Consult a licensed CPA or state tax attorney before making relocation decisions or filing positions.
If you’d like, I can run a short, personalized checklist for your situation (state of origin, destination, primary income types) to help estimate likely tax results and documentation needs.
