Tax Considerations for Moving Between States During the Year

Quick overview

Moving during the tax year can change which state has the right to tax parts of your income. You may become a part‑year resident in both states, owe tax on income sourced to each state, need to update withholding, and preserve documentation to support your residency claims. This guide explains the practical rules, common traps, and steps to reduce tax friction when you relocate mid‑year.

How residency is determined and why it matters

States use different tests to decide if you are a resident, part‑year resident, or nonresident. Typical tests include:

• Physical presence or day count (how many days you live in the state).
• Intent to make the state your permanent home (driver’s license, voter registration, mailing address).
• Maintaining a permanent place of abode (owning or leasing a home).

Because rules differ by state, the same facts can produce different outcomes. For example, New York uses a combination of domicile and statutory residency tests that can be aggressive, while Florida does not tax individual income at all. If you move from a high‑tax state to one with no state income tax, the timing and evidence of when you changed residency directly affects your tax bill.

Authoritative resources: see your new and old state revenue department pages and general guidance on state taxation (Consumer Financial Protection Bureau explains basic state tax concepts) and IRS guidance on moving and residency where applicable (see IRS Form 3903 for military moves) (IRS, ConsumerFinance.gov).

Part‑year resident returns and allocating income

If you are a resident in one state for part of the year and a resident in another state for the remainder, most states require a part‑year resident return. Typical rules:

• Report all income on the federal return.
• On each state return, report income earned while you were a resident and, in many cases, any source income from that state while you were a nonresident.
• Allocate wages and business income to the state where the work was performed.

Example: If you worked remotely for a company in State A while living in State B for the first half of the year, then moved and worked in State C, you may need part‑year returns in both B and C and possibly withholding reconciliations for State A depending on where the employer reported wages.

For more on residency and tests, see our detailed guide: State Residency Tests: How to Determine Where You Owe State Taxes.

Credits and avoiding double taxation

Many states provide a credit to residents for income tax paid to another state on the same income. The mechanics vary:

• If State X taxes income that was earned while you lived in State Y (or vice versa), you generally claim a credit on your resident state return for tax paid to the other state.
• Credits often apply only to the portion of income taxed by both states and are calculated on the resident state return.

Be careful: credits differ by state and sometimes exclude certain types of income. Check the specific rules or ask a tax professional.

Withholding and payroll issues

Update your employer’s state withholding as soon as your move is effective. Delays can create large refund or tax‑due amounts when you file. If you’re a remote or hybrid worker, withholding can be complex:

• Your employer may withhold based on where payroll is run, where the employer is located, or where you perform services.
• Some states have reciprocity agreements that let you avoid withholding in the work state if you live in a neighboring state (see our explainer on State Reciprocity Agreements).

If you expect to owe tax in both states for part of the year, consider estimated tax payments to the state that won’t refund payroll withholding automatically.

Special situations: remote work, commuters, and gigs

Remote work rules are evolving. States have taken different approaches to taxing remote employees. Common scenarios:

• You live in State A and temporarily work in State B: State B may tax wages earned there even for short stays.
• You change your tax home but continue to perform services for clients or an employer in your former state — that state may still claim tax on the portion of income sourced to work performed there.

If you’re a contractor or self‑employed, you must apportion business income to states where services were performed and may need to register to collect or pay state taxes in multiple jurisdictions.

See our guide on Multi‑State Filing for Remote Workers for details and examples.

Retirement, pensions, and other income types

Retirement income and pensions can be taxed differently by states:

• Social Security is taxable by the federal government but some states exempt it or tax it partially.
• State taxation of IRAs, pensions, and 401(k) distributions varies. If you take a distribution after you move, the residence at the time of distribution generally controls state taxability.

Plan distributions and timing if state tax differences are material to your net proceeds.

Moving expenses and deductions (current U.S. law)

Under current federal law (through at least 2025), moving expenses are not deductible for most taxpayers. The exception remains active‑duty members of the U.S. Armed Forces moving due to a military order; see Form 3903 and related IRS guidance for details (IRS). Keep receipts anyway — some states may allow moving expense deductions at the state level.

Practical checklist before and after your move

1. Document your move date and keep supporting evidence: lease or purchase closing, utility start/stop, driver’s license issue date, voter registration, change‑of‑address with USPS.
2. Notify payroll and update your W‑4/W‑4 (state equivalent) immediately.
3. Track days worked in each state and maintain a simple calendar or spreadsheet showing location by date.
4. Save pay stubs, 1099s, and invoices. Ask employers for corrected W‑2s if state withholding was reported incorrectly.
5. Check for local property tax or homestead benefits in your new state and apply if eligible.
6. If you expect multistate tax liability, consider estimated tax payments to avoid penalties.

Common mistakes and how to avoid them

• Assuming moving eliminates past tax obligations: states can tax income you earned while a resident or sourced to the state after you leave.
• Failing to update withholding: can produce surprise tax bills or large withholdings that reduce cash flow.
• Poor recordkeeping: without dates and proof, residency claims are harder to substantiate in audits.
• Ignoring reciprocity or credit rules: you might miss an easy way to reduce double taxation.

Real‑world examples (brief)

• High‑tax to no‑tax move: Moving from California to Texas typically reduces future state income tax, but the tax benefit depends on when residency is established and where income was earned during the move year.
• Seasonal or snowbird residents: Claiming residency in a low‑tax state while spending months elsewhere requires strong ties to the home state (driver’s license, voter registration, property ownership) and clear day counts.

When to get professional help

Consult a CPA or state‑licensed tax professional if you:

• Have significant income and expect state tax differences greater than the cost of professional help.
• Are moving between states with aggressive residency rules (e.g., New York, California).
• Are a remote worker with multi‑state clients or a business owner with nexus across states.

In my practice as a CPA and financial adviser, I’ve found that early planning—ideally before you move—reduces surprises. Small actions (changing your driver’s license, updating voting registration, adjusting payroll withholding) made within the right windows often resolve most questions.

Where to find official guidance

• IRS: About Form 3903 and moving expense rules for military: https://www.irs.gov/forms-pubs/about-form-3903
• Consumer Financial Protection Bureau: Basics on state income taxes: https://www.consumerfinance.gov/
• State revenue departments: search the revenue or taxation page for both your old and new state.

Disclaimer

This article provides general information and examples for educational purposes and does not constitute tax advice. State tax laws change and differ widely; consult a licensed tax professional, CPA, or your state revenue department for guidance specific to your situation.