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Why State Residency Matters for Your Taxes
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Why State Residency Matters for Your Taxes
Spending time out of state could have tax implications. Establishing your domicile can help you avoid paying extra.
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Expertise Merrill Lynch UBS AG UBS Global Asset Management Credit SuisseTiffany Lam-Balfour is a former investing writer and spokesperson at NerdWallet. Previously, she was a senior financial advisor and sales manager at Merrill Lynch. Her work has been featured in MSN, MarketWatch, Entrepreneur, Nasdaq and Yahoo Finance. Tiffany earned a finance and management degree from The Wharton School of the University of Pennsylvania.
Tiffany Lam-Balfour is a former investing writer and spokesperson at NerdWallet. Previously, she was a senior financial advisor and sales manager at Merrill Lynch. Her work has been featured in MSN, MarketWatch, Entrepreneur, Nasdaq and Yahoo Finance. Tiffany earned a finance and management degree from The Wharton School of the University of Pennsylvania. Lead Writer + more + more
Head of Content, New Verticals
11 years of experienceChris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News.
Chris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News. Head of Content, New Verticals + more + moreConsidering a move to another state or already spending time in more than one state? You may wish to follow a job opportunity or be closer to family — or perhaps you want to retire in a state with lower taxes.
Considering a move to another state or already spending time in more than one state? You may wish to follow a job opportunity or be closer to family — or perhaps you want to retire in a state with lower taxes .Whatever the reason, having more than one “home” is possible. But understanding state residency rules and the potential tax implications can help ensure that your living situation doesn’t result in unintended and expensive consequences.
Whatever the reason, having more than one “home” is possible. But understanding state residency rules and the potential tax implications can help ensure that your living situation doesn’t result in unintended and expensive consequences.Which state do you owe taxes to?
Which state do you owe taxes to?Although each state handles taxes differently, you will generally be considered a resident for state income tax purposes when your “domicile” is within that state and you spend more than half of the year living there.
Although each state handles taxes differently, you will generally be considered a resident for state income tax purposes when your “domicile” is within that state and you spend more than half of the year living there.What does 'domicile' mean?
What does 'domicile' mean?For income tax purposes, the term “domicile” means that a resident considers a state to be their permanent place of legal residency, “true home” or the place they return to after being away.
For income tax purposes, the term “domicile” means that a resident considers a state to be their permanent place of legal residency, “true home” or the place they return to after being away.An individual can have only one domicile at a time. However, depending on if you keep a home within a state and the amount of time spent within that state, you can also be considered a “statutory resident” of another state and be required to pay income taxes there as well as in your domicile state.
An individual can have only one domicile at a time. However, depending on if you keep a home within a state and the amount of time spent within that state, you can also be considered a “statutory resident” of another state and be required to pay income taxes there as well as in your domicile state.» MORE: 7 reasons the IRS will audit you
» MORE: » MORE: 7 reasons the IRS will audit you183-day rule
183-day ruleYour physical presence in a state plays an important role in determining your residency status. Usually, spending over half a year, or more than 183 days, in a particular state will render you a statutory resident and could make you liable for taxes in that state.
Your physical presence in a state plays an important role in determining your residency status. Usually, spending over half a year, or more than 183 days, in a particular state will render you a statutory resident and could make you liable for taxes in that state.The more you earn, the more complex your taxes become. Learn the 10 traps to dodge.
GET THE FREE GUIDEon NerdWallet Wealth Partners' site. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.
on NerdWallet Wealth Partners' site. For informational purposes only. NerdWallet Wealth Partners does not provide tax or legal advice.How to establish domicile
How to establish domicileAfter you’ve moved to a new state, establishing your domicile is important to avoid your former state coming after you with a tax bill. It's not uncommon for states to conduct residency audits, and the onus would be on you to provide evidence to support a change in domicile.
After you’ve moved to a new state, establishing your domicile is important to avoid your former state coming after you with a tax bill. It's not uncommon for states to conduct residency audits, and the onus would be on you to provide evidence to support a change in domicile.That evidence can include:
That evidence can include:Record of time spent within each state, preferably with more time spent in your new domicile state (because of the 183-day rule).
Record of time spent within each state, preferably with more time spent in your new domicile state (because of the 183-day rule).Employment location and status (permanent or temporary).
Employment location and status (permanent or temporary).Change of mailing address to new domicile state.
Change of mailing address to new domicile state.Transfer of driver’s license and vehicle registration to new domicile state.
Transfer of driver’s license and vehicle registration to new domicile state.Updated voter registration to new domicile state.
Updated voter registration to new domicile state.Purchase or lease of new residence in new domicile state, and sale or lease of residence in former state.
Purchase or lease of new residence in new domicile state, and sale or lease of residence in former state.Movement of what is “near and dear” to you to your new domicile state (family, pets, safety deposit boxes).
Movement of what is “near and dear” to you to your new domicile state (family, pets, safety deposit boxes).Establishment of bank and brokerage accounts in new domicile state.
Establishment of bank and brokerage accounts in new domicile state.Location of school for your children.
Location of school for your children.Board service for a business or charity in new domicile state.
Board service for a business or charity in new domicile state.Memberships to social organizations or clubs in new domicile state.
Memberships to social organizations or clubs in new domicile state.An important deciding factor can be the intent behind your move. Items on this list may support the intention that a move was permanent instead of temporary.
An important deciding factor can be the intent behind your move. Items on this list may support the intention that a move was permanent instead of temporary.When dual residency might apply
When dual residency might applyThere are circumstances in which you might be considered a dual resident and get hit with both states’ taxes:
There are circumstances in which you might be considered a dual resident and get hit with both states’ taxes:If you move to another state but fail to establish domicile there.
If you move to another state but fail to establish domicile there.If you have homes in both states.
If you have homes in both states.If you lived in one state, move to another and then return to the original state.
If you lived in one state, move to another and then return to the original state.If you are living in one state while working in another.
If you are living in one state while working in another.If you have relocated to another state on a temporary basis.
If you have relocated to another state on a temporary basis.If you are considered a resident of a state, typically you will owe taxes to that state on all of your income, regardless of whether it was earned within the state or elsewhere.
If you are considered a resident of a state, typically you will owe taxes to that state on all of your income, regardless of whether it was earned within the state or elsewhere.When you move from one state to another, you may need to file as a part-year resident in your new state as well as in your former state.
When you move from one state to another, you may need to file as a part-year resident in your new state as well as in your former state.You can also be considered a nonresident of a state and still owe taxes, with the difference being that a nonresident owes taxes only on the portion of income earned or sourced within that state.
You can also be considered a nonresident of a state and still owe taxes, with the difference being that a nonresident owes taxes only on the portion of income earned or sourced within that state.How to handle your state tax liability
How to handle your state tax liabilityAs with many financial decisions, determining your state residency tax-filing status and tax liability can be complicated. A tax professional can help you examine your specific situation and guide you on how to best handle, and minimize, your taxes for the current year and in the future.
As with many financial decisions, determining your state residency tax-filing status and tax liability can be complicated. A tax professional can help you examine your specific situation and guide you on how to best handle, and minimize, your taxes for the current year and in the future.» MORE: Search for a financial advisor near you
» MORE: » MORE: Search for a financial advisor near you About the author Tiffany Lam-Balfour Tiffany Lam-Balfour Tiffany Lam-Balfour is a former investing writer and spokesperson at NerdWallet. Previously, she was a senior financial advisor and sales manager at Merrill Lynch. Her work has been featured in MSN, MarketWatch, Entrepreneur, Nasdaq and Yahoo Finance. Tiffany earned a finance and management degree from The Wharton School of the University of Pennsylvania. See full bio.Helpful resources
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