Moving to Another State: What Happens to Your Taxes?
Moving to a new state can mean a new home, a new job, and a fresh start—but it can also make your taxes a little more complicated.
If you move across state lines during the year, you may have tax obligations in both your old state and your new state. Where you lived, where you worked, when you moved, and where your income was earned can all affect how your state income tax returns are prepared.
And simply changing your mailing address doesn’t necessarily establish that you’ve changed your tax residency.
Here’s what taxpayers should know about moving to another state and how it may affect their taxes.
Will You Have to File Tax Returns in Two States?
Possibly.
If you permanently move from one state to another during the tax year, you may need to file part-year resident tax returns in both states.
For example, suppose you live in State A from January through June and permanently move to State B in July.
Depending on the states involved and your circumstances, you may need to file:
- A part-year resident return for State A
- A part-year resident return for State B
- Your regular federal income tax return
Each state has its own rules, forms, filing thresholds, and definitions of residency.
Some states don’t impose an individual income tax on wages, while others do, so the tax impact of a move can vary considerably.
What Is a Part-Year Resident?
A part-year resident is generally someone who was a resident of a state for only part of the tax year.
This commonly happens when you permanently move from one state to another.
Part-year resident returns generally help determine which income is taxable by each state during the portions of the year in which you were a resident.
The exact calculation depends on the states involved.
Residency and Domicile Aren’t Always the Same Thing
State taxation can become more complicated because states may consider concepts such as residency and domicile.
Your domicile is generally your true, fixed, and permanent home—the place you intend to return to when you’re away.
Changing your domicile may involve more than simply spending time in another state.
States can consider various facts when determining whether you’ve actually established a new domicile, such as:
- Where your primary home is located
- Where your spouse and family live
- Where you’re registered to vote
- Where your driver’s license was issued
- Where your vehicles are registered
- Where you receive important mail
- Where you maintain financial and professional relationships
- Where you spend your time
- Where your personal belongings are located
- Your intent to make the new state your permanent home
No single factor necessarily determines residency in every situation.
This becomes especially important for taxpayers who maintain homes or significant connections in more than one state.
Your Moving Date Matters
Keep documentation showing when your move actually occurred.
Useful records might include:
- Lease agreements
- Home purchase or closing documents
- Utility activation and cancellation records
- Moving company invoices
- Change-of-address confirmations
- Driver’s license records
- Vehicle registration
- Employment records
These documents can help establish when you stopped being a resident of one state and became a resident of another.
This can be particularly important if the states involved have significantly different income tax rates.
What Happens to Your W-2?
If you’re an employee and move during the year, review your Form W-2 carefully.
The state information on your W-2 may show wages and withholding for more than one state.
For example, your W-2 could potentially show:
State A: wages and state income tax withheld before your move
State B: wages and state income tax withheld after your move
Make sure your employer knows about your move as soon as possible so payroll withholding can be updated.
If withholding continues for your old state after you’ve moved, correcting the situation later may require additional tax filings or refund claims.
What If You Live in One State and Work in Another?
Moving can create another common situation: living in one state while working in another.
Depending on the states involved, you may potentially need to file:
- A resident return in the state where you live
- A nonresident return in the state where you work
Many states provide mechanisms designed to reduce double taxation of the same income, such as credits for taxes paid to another state.
Some neighboring states also have reciprocity agreements that can change where certain wages are taxed.
Because the rules vary by state, don’t assume that living and working across state lines will be treated the same everywhere.
What If You Work Remotely?
Remote work can make state taxes even more complicated.
Suppose your employer is located in one state, but after moving, you perform your work entirely from another state.
Which state can tax your wages may depend on:
- Where you physically perform the work
- Where you live
- Where your employer is located
- Whether the employer’s state has special sourcing rules
- Whether a reciprocity agreement applies
- Other state-specific laws
Some states apply special rules to employees working remotely for an employer located within their borders.
If you’re planning to move while keeping the same remote job, consider discussing the state tax consequences before the move rather than waiting until tax season.
What Happens If You Own a Business?
Business owners can face additional issues when moving to another state.
A move may affect:
- Business registration
- State income taxes
- Payroll taxes
- Sales taxes
- Franchise or business taxes
- Employer registrations
- Business licenses
- Registered agent requirements
- Estimated tax payments
If you operate an LLC, corporation, partnership, or another registered business, moving personally doesn’t automatically move the business.
You may need to determine whether the business should remain registered in the original state, register in the new state, or make other structural changes.
What About Self-Employment Income?
Freelancers, independent contractors, and other self-employed taxpayers should also pay close attention to where their income is earned.
If you operate your business from more than one state during the year, income may need to be allocated or sourced according to each state’s rules.
You may also need to adjust your state estimated tax payments after moving.
Keeping accurate records of when and where you performed work can make this process much easier.
What Happens to Investment Income?
Wages aren’t the only type of income affected by residency.
Depending on the state and circumstances, your residency can also affect the taxation of:
- Interest
- Dividends
- Capital gains
- Retirement income
- Rental income
- Business income
For part-year residents, states may have specific rules for determining which income is taxable during the period of residency.
Income connected to property or business activity located in your former state may potentially remain taxable there even after you move.
What If You Own Rental Property in Your Old State?
Moving away doesn’t necessarily end your tax obligations to your former state.
Suppose you move from State A to State B but continue owning a rental property in State A.
Rental income from property located in State A may still create a tax filing requirement there, even though you’re no longer a resident.
You might therefore file a resident return in your new state and a nonresident return in your former state.
Similar issues can arise when you continue operating a business or earning other state-sourced income in your former state.
Can Two States Tax the Same Income?
In certain circumstances, the same income may be included in calculations for more than one state.
However, state tax systems frequently provide credits or other mechanisms intended to reduce double taxation.
For example, your resident state may potentially provide a credit for qualifying income tax paid to another state.
These rules vary, and the calculation isn’t always dollar-for-dollar.
That’s why preparing multi-state returns correctly matters.
What If You Move to a State Without an Individual Income Tax?
Moving to a state that doesn’t impose a broad individual income tax on wages can potentially change your state tax situation.
But moving doesn’t necessarily eliminate your obligations to your former state immediately.
Your former state may still consider you a resident if you haven’t actually changed your domicile under its rules.
You could also continue having filing requirements there if you:
- Own rental property
- Operate a business
- Perform work there
- Receive other income sourced to that state
Simply purchasing a home in a no-income-tax state doesn’t automatically end residency somewhere else.
Update Your Tax Withholding
After moving, check your paycheck.
Make sure your employer is withholding taxes for the correct state or states.
Don’t assume payroll automatically updated everything because you changed your address in one system.
Review:
- Federal income tax withholding
- State income tax withholding
- Local taxes, if applicable
- Your address
- State wage information
Finding an error on your first paycheck after moving is much easier to address than discovering it after an entire year.
Estimated Tax Payments May Need to Change
If you make quarterly estimated tax payments, moving can affect where those payments should go.
This may apply if you receive income from:
- Self-employment
- Investments
- Rental property
- Retirement distributions
- Other sources without sufficient withholding
You may need to stop or adjust payments to your former state and begin making payments to your new state.
Depending on the circumstances, you could still owe estimated taxes to both.
Don’t Forget Your Federal Tax Return
Moving to another state generally doesn’t mean filing multiple federal income tax returns.
You’ll typically still file one federal return for the year.
However, make sure the IRS has your current address.
If you’ve already filed a return and later move, Form 8822, Change of Address, may be used to notify the IRS of an individual address change in applicable situations.
You should also update your address with other relevant organizations.
Keep Your Moving Records
After moving, don’t immediately throw away documents associated with your old residence.
Consider maintaining records such as:
- Closing statements
- Lease agreements
- Moving invoices
- Utility records
- Employment documents
- State tax returns
- W-2s
- Driver’s license records
- Vehicle registrations
- Property records
These records can help support when your residency changed and may also be useful for other tax matters.
Are Moving Expenses Tax Deductible?
For most taxpayers, personal moving expenses generally aren’t deductible for federal income tax purposes under current law.
Special rules may apply to certain members of the Armed Forces and other qualifying situations.
State treatment can differ from federal treatment, so taxpayers shouldn’t automatically assume the federal rule determines their state deduction.
Selling Your Old Home Can Add Another Tax Question
If your move involves selling your primary residence, there may also be federal and state tax considerations involving the gain on the sale.
Under federal law, eligible homeowners may potentially exclude some or all of the gain from the sale of a principal residence when applicable ownership and use requirements are satisfied.
Keep records related to:
- Original purchase price
- Certain closing costs
- Qualifying improvements
- Sale price
- Selling expenses
Those records may be needed to determine your adjusted basis and calculate any taxable gain.
A Moving Tax Checklist
If you’re moving to another state, consider adding these tax tasks to your moving checklist:
- Record the exact date you establish residency in the new state.
- Update your address with your employer.
- Review state withholding on your paycheck.
- Update your driver’s license and vehicle registration when required.
- Update voter registration when appropriate.
- Keep records supporting the move.
- Review estimated tax payments.
- Determine whether you’ll need part-year or nonresident state returns.
- Review any business or rental property obligations.
- Notify the IRS and other relevant agencies of your new address when necessary.
- Keep tax documents from both states.
- Tell your tax preparer that you moved.
That last point is especially important.
Your tax preparer needs to know when you moved, where you lived, where you worked, and what income you received before and after the move.
The Bottom Line
Moving to another state can affect much more than your mailing address.
Depending on your situation, you may need to file tax returns in multiple states, allocate income between states, update withholding, adjust estimated tax payments, and establish that you’ve actually changed your residency or domicile.
Remote workers, business owners, rental property owners, retirees, and taxpayers who maintain connections to their former state can face additional complications.
If you’ve moved—or you’re planning to move—Phoenix Financial Group can help you understand how the change may affect your tax filing and what records you should keep along the way.