Overview

Moving between states during the tax year can create obligations to your old state, your new state, or both. States determine tax liability primarily by residency rules (domicile and residence), source of income, and when the income was earned. This guide explains why you might owe state income tax after moving, how to calculate what’s due, and practical next steps to resolve or reduce the liability.

Note: This article is educational only and not individualized tax advice. For guidance specific to your situation, consult a tax professional or the relevant state Department of Revenue (see links below). Author is a CPA with 15 years’ experience advising relocating taxpayers.

Authoritative references: IRS guidance on state and local taxes (irs.gov), National Conference of State Legislatures (ncsl.org) and state Department of Revenue websites.

Why you can owe taxes after moving

  • Residency is not always cut-and-dry. States use different tests (domicile, physical presence, ties such as a driver’s license or voter registration) to determine if you’re a resident. A state may treat you as a resident for part of the year (part‑year resident) or as a nonresident if you moved away during the year.
  • Income sourcing matters. Many states tax income earned within their borders even if you live elsewhere (wages earned while physically working in a state, income from rental property, or business income sourced to that state).
  • Timing of income recognition. If you received wages, bonuses, or distributions that were earned while you were a resident of your old state, that state can tax that income even after you move.

For a deeper primer on relocation issues, see our State Tax Considerations for Relocating Individuals.

Typical filings when you move

  • Part‑year resident return (old state and new state): You report income earned while you were a resident of each state.
  • Nonresident return (old state): If you moved out but earned income sourced to the old state after moving (for example, rental income or work performed there), file a nonresident return reporting only income sourced to that state.
  • Resident return (new state): Report all income as required by your new state; you may claim a credit for taxes paid to the old state if both states tax the same income.

Many taxpayers initially overlook the need to file the old state’s closing return. Failing to file can trigger notices, penalties, or collection actions.

How to determine residency and allocate income

  1. Confirm residency periods. Record the dates you left your old state and established residency in the new state. Keep evidence: lease or home closing statements, driver’s license or voter registration date, utility bills, and employment records.
  2. Review each state’s residency rules. Some states have bright‑line tests (e.g., more than X days present), while others rely on domicile. See our State Residency Tests guide for comparison and check your state’s Department of Revenue guidance.
  3. Allocate income by type:
  • Wages: Often allocated based on where the work was performed or by the period you were a resident. If you teleworked after moving, the taxing state may depend on employer location or local sourcing rules.
  • Business/self‑employment: Usually apportioned by the state’s sourcing rules (sales, payroll, services performed) and may require an allocation method.
  • Investment, pension, Social Security: Tax rules vary widely—some states tax pensions, others do not.

Example: prorating wages as a part‑year resident

  • Annual salary: $120,000
  • Days as resident in State A: Jan 1–June 15 (166 days)
  • Days as resident in State B: June 16–Dec 31 (199 days)
    If State A taxes part‑year residents on income earned while a resident, a simple prorate would allocate $120,000 × (166/365) = $54,630 to State A and $65,370 to State B. Check each state’s rules—some states allocate based on days worked, not days resident.

Common credits and relief from double taxation

  • Credit for taxes paid to another state: Many states let you credit tax paid to another state for the same income. You generally claim this on your resident/state return to reduce double taxation.
  • Reciprocity agreements: Neighboring states sometimes have reciprocal rules for wages (commuters). If a reciprocity agreement exists, you may owe tax only to your state of residence—not the state where you work.
  • Allocation rules: Properly allocating income to the state where it was earned often eliminates overlap.

Always read the instructions on the state returns carefully; the mechanics and eligibility for credits differ by state.

Practical steps if you owe state tax after moving

  1. Don’t ignore notices. If the old state sends a notice, respond promptly—unanswered notices can lead to liens, levies, or wage garnishment.
  2. Gather documentation: Move date evidence, pay stubs, W‑2s, 1099s, closing/lease documents, and records of days physically present in each state.
  3. File the correct returns: Part‑year, nonresident, or amended returns as required. If you missed filing in the old state, file the return as soon as possible to reduce penalties and interest.
  4. Claim credits: When filing in your new state, claim credits for taxes paid to the prior state on the same income.
  5. Adjust withholding and estimated payments: Update state withholding with your employer (state W‑4 or equivalent). If you have tax due from prior residency, consider paying estimated taxes to avoid underpayment penalties.
  6. Negotiate payment plans: Most state revenue departments offer installment agreements. Contact the state DOR proactively to set up a plan and avoid enforced collection. If penalties were reasonable and there is reasonable cause, request penalty abatement.
  7. Consider amending returns: If you discover misallocation or errors after filing, you can amend state returns. Check each state’s statute of limitations—commonly three years but varies.

For guidance on amending returns, see our When and How to Amend State Tax Returns article.

Special situations to watch for

  • Remote work: If you live in one state and your employer is in another, multiple states may claim the income. Recent state rules have evolved after the rise of telework—review the state’s remote worker guidance and multistate nexus rules.
  • Bonuses and stock vesting: Income tied to services performed before you moved (e.g., a bonus for work done while you were a resident of the old state) may be taxed by the old state.
  • Retirement moves: Pension and retirement distribution taxation varies. Moving to a no‑income‑tax state can help for future income but won’t undo tax owed to a prior state for income earned while you were a resident.

For planning tailored to mobile or remote workers, see our State Tax Planning for Mobile Workers and Remote Employees guide.

Dealing with mistakes and audits

  • If you underpaid and are contacted, provide documentation of your move and an explanation of how you allocated income. States handle audits differently, but solid contemporaneous records (move date, employer letters, travel logs) greatly improve outcomes.
  • If you believe the state is incorrect, you can file an appeal following the state’s administrative process. Consider professional representation for complex or large liabilities.

Example scenarios (brief)

  • Moved June 1 from State X to State Y; employer withheld State X for the whole year: File a part‑year resident return in State X reporting income earned through May 31, and State Y for the rest; request refund or adjustment from employer for withholding; claim credit where allowed.
  • Keep a paper trail when you change addresses with payroll and your employer’s HR: a delayed update can cause year‑end withholding to be reported to the wrong state.

Quick checklist if you owe after moving

  • Confirm move dates and collect proof (closing statements, lease, utility bills).
  • Get copies of W‑2s and 1099s showing state allocations.
  • Read the old state’s instructions for nonresident/part‑year returns.
  • File missing returns promptly; consider an extension only if eligible.
  • Claim credits on your resident return for taxes paid to another state.
  • Contact the state DOR to arrange payment, if necessary.

When to get professional help

If your situation involves substantial income, self‑employment in multiple states, complex bonuses/stock compensation, or collection actions (liens/garnishments), consult a tax professional experienced in multistate taxation. In my practice, early engagement with a CPA prevented unnecessary penalties and successfully negotiated installment agreements for clients who moved mid‑year.

Resources

Professional disclaimer: This content is for educational purposes only and does not constitute legal or tax advice. Laws and administrative rules change; consult your tax professional or the relevant state Department of Revenue for advice about your unique circumstances.