Did you relocate in 2023 and wonder how it impacts your taxes? Moving states can make filing taxes more complex, but understanding the essentials can help simplify the process.
Moving to a new state can affect not only your lifestyle but also your tax responsibilities. Each state has unique tax rules, and moving mid-year often means you will need to file in both your old and new states.
Typically, this requires part-year or nonresident returns, each with its own requirements for reporting income earned before and after the move. Additionally, factors like state residency rules, credits for taxes paid to other states, and deductions can complicate the process. Understanding these aspects can help you avoid filing errors and reduce your tax burden. In this article, we will break down what to expect and how to navigate your taxes smoothly after relocating.
What happens to my taxes when I move states?
When you move to a new state, your tax situation typically becomes more complex due to differing state requirements. The main elements you should keep in mind include but are not limited to the following:
Filing Part-Year or Nonresident Returns: Most states require you to file a part-year resident return if you move within the tax year. In some cases, if you work in one state but live in another, you may also need to file as a nonresident in one of the states.
Allocating Income: You will need to split your income between states, reporting the amount earned before and after your move according to each state’s rules. This usually includes wages, interest, dividends, and even capital gains.
Deductions and Credits: Some states offer tax credits for taxes paid to other states, helping to reduce double taxation. Part-year and nonresident returns often have specific sections for reporting these credits.
Residency Considerations: Each state has different criteria for determining residency. Establishing residency in a new state may involve factors like changing your voter registration, updating your driver’s license, and more.
Special Situations: If you maintain property or work in both states after moving, you may face additional filing requirements, especially if both states consider you a resident for tax purposes.
Navigating these requirements can be complicated, but understanding the basics of part-year and nonresident filings helps make the process smoother.
Who has to file part-year or nonresident taxes when they move states?
If you moved to a new state during the tax year, there are various scenarios where you may need to file part-year or nonresident tax returns.
Part-Year Residents: Most people who move states mid-year will file as part-year residents in both their former and new states. This filing status applies if you established a permanent residence in a new state within the tax year. Each part-year return requires you to report only the income you earned while residing in that state, making it important to clearly divide income based on the dates of your residency change.
Nonresidents Earning Income in Multiple States: If you continue to work or have income sources (such as rental property) in a state where you no longer reside, you may need to file a nonresident return for that state. Nonresident returns typically require you to report only the income earned within that state, such as wages from work performed there or rental income from property located there.
Dual Residency Situations: Some taxpayers find themselves considered residents by both their old and new states, particularly if they own homes or work in both. Each state has its own residency criteria, which may include factors like time spent in the state, property ownership, and other economic ties. Dual residency can complicate taxes, but most states offer credits for taxes paid to other states to avoid double taxation.
Special Considerations for Military Personnel and Students: Active-duty military members who relocate under official orders are often protected by the Servicemembers Civil Relief Act (SCRA), which allows them to maintain their residency in their home state for tax purposes, even when moving states. Full-time students who move for educational purposes might also maintain residency in their home state if they don’t establish a new domicile. Checking the specific rules for these groups can prevent unnecessary filings.
In each of these cases, understanding your filing status—whether as a part-year resident, nonresident, or dual resident—ensures you file correctly and avoid penalties for underreporting or overpaying taxes.
Why do I have to file taxes for two or more states when I move?
Filing taxes for multiple states may seem complex, but there are key reasons why it’s required after a move:
Residency Rules and Income Allocation: Each state taxes residents on income earned while living within its borders. When you move, both states consider you a resident for part of the year, so each one expects a portion of taxes for the time you spent as a resident. You’ll need to allocate your income between states based on where you were living when you earned it.
Avoiding Double Taxation: States have tax rules to prevent double taxation, such as credits for taxes paid to another state. By filing returns in each state where you earned income, you’re able to claim these credits and avoid paying twice on the same income, which often involves filing as a part-year or nonresident.
Unique State Tax Laws: Each state has its own tax laws, rates, and deductions, so you may have different reporting requirements in each. For example, states vary in how they treat capital gains, retirement income, or tax credits, and these differences affect your tax liability.
Income Earned in Multiple States: If you continued to earn income from sources in your previous state (like rental property or freelance work) after you moved, you’re still liable to pay taxes on that income in the source state. This requires filing a nonresident return there, ensuring each state receives taxes on income generated within its borders.
Legal Compliance: State tax authorities require part-year or nonresident filings to accurately report and assess the income their residents earned while living in or generating income from their state. Filing in both states fulfills these legal requirements, helping you avoid potential audits, penalties, or fines for underreporting income.
By understanding why these filings are necessary, you can see how part-year and nonresident returns serve to both allocate your tax burden fairly and ensure compliance with each state’s laws.
How do I prepare a multi-state return when I move states?
Preparing a multi-state return after a move involves a series of steps to ensure accurate reporting in both states. Here’s a step-by-step guide:
Gather Income Documentation by Date: Start by organizing income documents like W-2s, 1099s, and pay stubs. For each income source, determine which portion was earned in your former state and which in your new state, based on your move date.
Determine Residency Status in Each State: Check each state’s residency rules to understand whether you qualify as a part-year resident, nonresident, or dual resident. This will guide which forms to file and how to allocate your income.
Calculate Income for Each State: Divide your total income according to the time spent in each state. Use your move date as the boundary, allocating income earned before the move to your former state and income after the move to your new state.
Check for Tax Credits: Look for any credits available for taxes paid to other states, especially if you earned income that’s taxed in both states. This can help offset the tax burden and avoid double taxation on the same income.
File Part-Year or Nonresident Returns: Complete the appropriate forms for each state. Most states have specific forms for part-year or nonresident filers, allowing you to report income accurately based on your residency period in each state.
Adjust for Deductions and Exemptions: Review each state’s deductions and exemptions. Some states have different allowances for part-year residents or nonresidents, which could reduce your taxable income in each state.
Double-Check for Accuracy: Ensure that income, credits, and taxes are reported correctly in both states. Verifying your calculations helps avoid discrepancies that could trigger audits or penalties.
Consult with a Tax Professional if Needed: Multi-state returns can be complex, especially if there are overlapping residency issues or dual taxation. A tax professional can offer guidance to ensure you’re filing correctly and claiming all available deductions.
When are taxes due when I move states?
While the federal tax deadline is usually April 15th, filing state taxes after a move has additional timing considerations:
Standard Filing Deadlines: Most states follow the federal deadline, requiring you to file both part-year and nonresident state returns by April 15th of the following year. If you’ve moved recently, it’s essential to be aware of both deadlines to avoid late fees and penalties.
Extensions: If you need more time to complete your multi-state filings, you can file for an extension, typically using federal Form 4868. However, remember that an extension to file does not extend the time to pay any taxes due, so you should pay estimated taxes by April 15th to avoid interest and penalties.
Estimated Tax Payments: If you owed taxes in the past or are self-employed, making estimated tax payments to both states during the tax year can help you avoid an underpayment penalty. This may involve dividing estimated payments between the states according to your income allocation.
Residency and Move Timing: The timing of your move affects your filing requirements. If you moved close to the end of the tax year, your new state might allow you to file as a full-year nonresident instead of part-year. However, this depends on each state’s residency laws, and checking these details helps avoid unnecessary filings.
Special Situations with Dual Residency: If you were a resident in both states for significant periods of the year, consult each state’s guidelines on dual residency. Dual residency may have unique deadlines, filing requirements, or credits for taxes paid to other states, which vary by state.
Most common myths about taxes and moving states
Myth: You only have to file in your new state.
Reality: In most cases, you’ll need to file in both your previous and new states, especially if you earned income in both. Part-year or nonresident returns help you report income earned while living in each state.
Myth: Moving mid-year means you’re automatically a resident of the new state.
Reality: Residency depends on each state’s criteria, which include factors like the time spent in each state and intent to remain there. You may still need to file as a nonresident or part-year resident, depending on these factors.
Myth: Filing for an extension applies to both states automatically.
Reality: While a federal extension can give you more time to file, states may have different rules or separate extension processes. Be sure to check each state’s guidelines, as an extension doesn’t postpone tax payment deadlines.
Myth: You’ll be double-taxed on income earned before you moved.
Reality: States often offer credits for taxes paid to other states, which prevents double taxation on the same income. These credits can reduce or eliminate duplicate taxes when reported correctly.
Myth: Income sources are taxed based on your residency status alone.
Reality: Income is taxed based on where it was earned, not solely on your residency status. For example, rental income or business profits earned in your previous state may still require a nonresident filing in that state even after you move.
More Reading
Final Thoughts
Filing taxes after a move can be complicated, with part-year and nonresident filings often required to ensure you meet each state’s tax obligations. While understanding the rules and deadlines is essential, consulting a tax professional can help simplify the process and ensure you’re maximizing credits and deductions available across states. By preparing carefully and using available resources, you can confidently navigate multi-state tax filing after a move.
Contact Us
We are here to help with any questions you have. Just give us a call.
Tax and Ledger Professionals, Inc
Email Address: info@taxtl.com
Phone Number: (760) 480-1040
Website: https://www.taxandaccounting.com/
Address: 365 W 2nd Ave, Escondido, CA 92025
About Us
For over 35 years, we've been the go-to for tax, accounting, bookkeeping, and payroll services that keep businesses running smoothly and lower individuals' and businesses' tax burden. See for yourself how we've transformed numerous businesses across San Diego and throughout the United States.
What do we prepare?
Income Taxes:
Individuals
Businesses
Estates and Trusts
Nonprofits
Foreign Tax Reporting
FBAR
3520
5471 & 5472
Payroll
Accounting and Bookkeeping
Business Consulting
Business Plans and Models
Fractional CFO
Comments