Moving to a new state comes with a lot of hassles, including packing and unpacking, setting up utility hookups, and filing two state tax returns. That’s right, two. You will have file a tax return for part of the year in both your old state and your new state if you move during the tax year.
- 1 Which form should you use?
- 2 Half-year residency versus no residency
- 3 Division of revenue between states
- 4 Unearned Income Vs. Earned Income
- 5 If you have both non-work and work income
- 6 Proration of your tax liability
- 7 Proration of deductions
- 8 Tax Payments and Credits
- 9 Frequently asked questions (FAQ)
- 10 How long do you have to live in a state to be required to file taxes?
- 11 Can you be a resident of two states?
Which form should you use?
Many states have dedicated forms for part-year resident taxpayers, but some use the same forms as full-year residents with special calculations.
The same form is used for both part-year residents and non-residents in some states.
Check the website of your state taxing authority to find out which form to use. It is usually denoted “PY” if your state has a special form for part-year residents, and that is the form you should use. You must complete a resident tax return for part of the year for each state in which you lived during the year.
Half-year residency versus no residency
Do not confuse half-year residency with non-residence. Part-of-the-year residents are usually those who actually lived in the state for part of the year, although there are some exceptions to this rule. A nonresident simply earned income in the state without maintaining a home there.
If you worked in a state but never lived there, you would normally file a nonresident return.
Division of revenue between states
Part-of-the-year tax returns are typically prepared based on your total income from all states, and then your tax liability is prorated based on the amount of income you earned in each location.
This is easy to find out if you moved to a new state to start a job there. You will receive a W-2 form from each employer, and each one will tell you how much they paid you for that particular job. But it can get more complicated if you moved while still working for the same company, because in this case you would only receive a W-2.
The W-2 will show the total amount your company paid you, so you’ll have to divide the income between the statements on your own. You can do this in two ways.
Option 1: Assign based on how long you lived in each state
You can allocate your income to each state based on the number of weeks or months you lived there if your income is relatively the same each month.
For example, you may have worked 11 months a year, taking a month off between jobs. She moved to his new state and started working there in early June. This means that she would have spent about seven out of 11 months working on her new state.
You would use the 7/11 fraction to allocate your income to the new state. The remaining income would go to your old estate. Instead, you could use weeks to more accurately allocate your income.
Option 2: Use your employer’s payroll information
Using a pay stub to allocate your earnings is often more accurate, especially if your earnings fluctuate from pay period to pay period throughout the year. Try to get pay stubs, time sheets, or other records from your employer to help you estimate the actual earnings he earned in the first state he worked in.
If you’re using the pay stub method to split income between states, make sure it’s from a pay period that ended right around the time you moved. This should tell you almost exactly how much you earned from that job.
Unearned Income Vs. Earned Income
Earned income is derived from wages, salaries, and tips, while non-earned income comes from non-earning sources. Some examples of unearned income include interest, dividends, some Social Security benefits, and capital gains.
Unearned income is generally assigned to the state where you lived at the time you received it. For example, income would be attributed to your new state if you sold stock at a profit right after moving there.
You will need to allocate your unearned income based on the fraction of the year you lived in that state if it cannot be clearly attributed to a state. Nine of 12 months would be 9/12, for example.
If you have both non-work and work income
You would simply calculate your unearned income in State A, and add to that your earned income in State A, to get your total income for State A if you have both earned and unearned income. You would do this for each state you resided in during the year.
Proration of your tax liability
Many state tax returns will use the percentage of your income attributed to that state to apportion your tax liability after you’ve determined how much you earned in each location.
This percentage is equal to the amount of income you earned in the state, divided by your federal adjusted gross income, which would be your total income in all states. It represents the percentage of your income that was earned in that particular state. It is then multiplied by the total tax amount for that state, which is based on your total income for the entire year.
When dividing the tax liability among the states using the method of apportioning the income you earned in each state, your state of residence is not relevant.
The length of time you lived in the state does not matter in this case. As an example, Jane moved from Idaho to Virginia to start a new job during the fiscal year. Her total taxable income for the year was $100,000. She earned $80,000 in Idaho and the remaining $20,000 in Virginia.
Using the tax table on your Idaho part-year tax return, you have a tax liability of $5,000 based on your total income of $100,000. You would then multiply that $5,000 tax liability by 80% for a $4,000 tax liability, because you only earned 80% of your total Idaho income: $80,000 of Idaho income divided by $100,000 of total income is 80%.
The same process would be repeated on your Virginia return, using 20% ($20,000 of Virginia income divided by $100,000 of total income) to prorate the Virginia tax liability.
Proration of deductions
Some states use this same percentage to prorate deductions, which are then subtracted from that state’s assigned income. The state tax amount is based on the resulting taxable income figure.
Using Jane’s example again, let’s say she had $15,000 in total deductions in Idaho. This deduction amount would be multiplied by 80%: $80,000 of Idaho income out of $100,000 of total income. This would give Jane an Idaho deduction amount of $12,000: 80% multiplied by $15,000.
The $12,000 Idaho prorated deduction amount would be subtracted from her $80,000 Idaho income to find Jane’s Idaho taxable income using this method. She would have an Idaho taxable income of $68,000. Her Idaho state tax would be based on that amount.
What happens to the income before moving in?
Jane would also include the income in her Virginia total if she had earned income in Virginia before she physically moved there. Most states require part-year residents to pay taxes on income earned while a resident, as well as income received from sources within that state.
Tax Payments and Credits
You’ll use the actual amount of tax withheld from your paycheck for each state, and the estimated payments you could have made to each state, to calculate these amounts. No adjustment is made to payments and tax credits.
Tax credits in each state may be subject to special calculations, so read the instructions carefully. And do not neglect to take advantage of the credit for taxes paid to another jurisdiction. States must offer this credit to part-year residents after the US Supreme Court ruled on May 18, 2015, that no two states can tax the same income.
Frequently asked questions (FAQ)
How long do you have to live in a state to be required to file taxes?
You must report taxes from a state if you have earned income there. You are also required to file taxes based on where you live. Residency determines which forms you file if the state has different forms for residents and nonresidents or full-year or part-year residents. States vary when it comes to how they classify part-year or full-year residents. Some states consider you a full-time resident if you lived there for at least 183 days. Consider consulting a tax professional for help if you need to file taxes in multiple states.
Can you be a resident of two states?
It is technically possible to be a resident of two states, but it is relatively rare. Generally, this would only happen if you have your domicile (permanent residence) in one state but lived in another for 184 days for work or other purposes. Check how each state defines a full-year resident, and note that there are exceptions for those serving in the military, college students, and those receiving medical treatment. If you are not sure how to proceed, consult a tax professional.