Moving between states and part year residency

How it works

Each state with an income tax has its own definition of residency, usually based on domicile, meaning the place a person treats as their permanent home, plus a day count test that can make a person a resident after a set number of days. A part year resident return reports income earned while living in that state and, for some states, income from sources in that state earned while living elsewhere. Wages are split by the dates, and a W2 may show two state lines. Investment income is usually split by residency date. States that tax the same dollars give a credit for tax paid to the other state under their own rules. Federal moving expenses are not deductible except for active military under conditions the IRS lists.

What it gives

A move from a high tax state to a no income tax state stops that state's tax on income earned after the move.

Part year returns keep each state to its share rather than taxing the whole year twice.

A credit for tax paid to another state prevents double tax on the same wages in most cases.

What it costs, or where the catch is

Two state returns in one year mean more forms and more fees.

A state that is left behind can argue the person never changed domicile, especially when a home is kept there.

Moving expenses are no longer deductible on the federal return for civilians.

A worked example

Tobias earned $90,000 for the year and moved from a state with a 5 percent income tax to a state with no income tax on August 1. His pay was spread evenly, so $52,500, seven twelfths of $90,000, was earned in the first state and $37,500 after the move. His part year return to the first state taxes $52,500, roughly $2,625 at 5 percent, and the $37,500 earned after the move is not taxed by either state.

Where it goes wrong

The common miss is keeping a driver's license, a home, and a bank account in the old state, which lets that state claim the person as a full year resident.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Tax Topic 455, Moving expenses for members of the Armed Forces. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.