Filing Taxes After Moving to a New State
Filing taxes is perhaps the most difficult financial obligation every taxpayer must go through each year, and it becomes increasingly difficult to navigate how to file taxes if you moved to another state. Each state has their own rules and regulations for filing taxes, and if you’re not well-informed about them, you can end up with unpaid tax debt that requires IRS investigation.
Although many Americans may not see themselves ever moving to another state, the likelihood is much higher than one might expect. According to statistics from the U.S. Census Bureau, the percentage of people that move between states every year equates to 14% of the population; roughly 40 million people.
Needless to say, you will need to know how to file taxes if you moved to another state – even if you only move once within your lifetime. Accurately filing taxes after moving states is crucial. Below are the various factors you will need to take into consideration.
Why Does Inter-State Migration Occur?
Each of the fifty states have different laws and government regulations. One difference of significant importance is how each handles their federal and local taxes.
Income and Property Tax
Some states, such as Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming, have no tax income to pay at all. Florida, for example, has no personal income taxes required, but does impose taxes on the value of some business assets. Then there is New Hampshire and Tennessee, who only record dividend and interest income.
On the opposite end of the spectrum, states with some of the highest income taxes and property tax requirements include Illinois, California, New Jersey, Michigan, and Pennsylvania. Consequently, these states consistently rank as the highest for outbound moves, with Illinois, California, and New Jersey topping the charts in 2019. In general, these states are considered the least taxation-friendly states in the country, especially during COVID-19.
Migration Pattern Theories
The observed pattern of migration within the United States in the past ten years has shown consistent movement out of the Northeast and Midwest, and into the South and Northwest. Idaho, Arizona, South Carolina, Tennessee, and North Carolina regularly rank high for inbound moves.
The theory behind this migration pattern primarily comes down to taxes and climate: people and businesses have been moving out of states with higher taxes and into tax-friendly states, and from colder to warmer climates.
Major Factors of Filing Taxes After Moving to Another State
As tax time approaches, you may find yourself asking: how do I file taxes if I moved to a different state? The three major factors of learning how to file taxes if you moved to another state depend on which states are involved, which state is considered the source of income, and state income tax reciprocity.
Which States Are Involved: Filing Taxes in Two States After Moving
One thing to keep in mind about how to file taxes if you moved to another state is that you may need to file taxes in both states. As mentioned earlier, each state handles taxes differently. Many states, like Alaska and Texas, have no state income taxes. Utah allows its residents to deduct a set amount from their qualified retirement income, and Louisiana doesn’t tax pensions.
Residency eligibility requirements also vary depending on the state. Once you have moved, and before you file, make sure to check the residency rules for your new home state. Often, a state may consider you to be a full-year resident if you’re present in the state for at least 183 days. If you rent out your home in your old state, you will probably have to file an income tax return in your old state to report your income and expenses.
To reiterate, be sure to research the tax rules and regulations for the two states involved with your move. At the end of the day, the most influential factor for filing your taxes will be which state you moved into and out of.
Sources of Income
After your move, you will most likely file a part-year resident return in both states. You will have to file a state return depending on where you received income, be it standard wages, self-employment, or property income.
Once your taxes have been calculated, they will be reduced based on the income you made as a resident, compared to your total income. Other states will have you first divide your income between states before calculating the tax.
The states involved are the real determiners for the specific filing rules. However, keep in mind that income from interest, dividends, and pensions is usually considered to be derived from your current state of residence.
State Income Tax Reciprocity
Before you move, determine if there is a reciprocity agreement between the two states in question. State income tax reciprocity is when a taxpayer lives in one state but works in another. The two or more states involved agree to exempt the income earned by non-residents from a nearby state.
State income tax reciprocity depends on the states, and if your wages are your only source of income. In the case where two states do have an income reciprocity agreement, your employer is obligated to provide you with the withholding exemption request forms for the nonresident state.
Partner with TaxRise
Misfiling or forgetting to file your taxes is considered a crime, refusal to file your taxes is a form of tax evasion. If figuring out how to file taxes if you moved to another state is causing you too much confusion (or if you already have unfiled taxes as a result of moving), don’t risk making a mistake and incurring the penalties from the IRS. Reach out to the professionals at TaxRise for assistance.