Contributed by: Rachel R, FreeTaxUSA Agent, Tax Pro
Imagine you’re loading a moving truck for a big move from one state to another. Between taping boxes and trying to fit a couch through the door, you’re probably not thinking about taxes. But at some point, a question might pop up in the back of your mind: “Do I need to file taxes in both states?”
In many cases, you’ll need to file tax returns in two states for the year you move. However, this depends on the states involved, your income, and where you lived and worked. We’ll dive into more detail here.
Do both states have income tax?
The first thing to consider is whether both your old state and your new state have income tax. Eight states ― Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming ― don’t have a state personal income tax, which typically means tax returns aren’t required in those states. If you moved to or from a state not on that list, you may need to file a state return.
Example: James moved from Idaho to Alaska on June 30th for a new job. James will need to file an Idaho tax return for his income from January through June, but he won’t need to file an Alaska tax return for his income earned from July through December because Alaska doesn’t have state income tax.
Did you earn money in both states?
Another factor is whether you earned money in both states during the year. Typically, states have a minimum income threshold based on your filing status. If your earnings exceed that amount, you likely need to file in that state.
Even if your income is less than that amount, you may still want to file if you had state tax withheld or you qualify for certain credits. But if you did not earn any income in the new state during the year, you generally won’t need to file there.
Example: Lindsey lived and worked most of the year in North Carolina. In November, she left her job and moved to California. She had no income other than her wages, and she didn’t start work in California until the following year. Consequently, she’ll file a part-year resident North Carolina tax return for the January through November income, but she generally won’t need to file a California tax return because she didn’t earn any income there during the calendar year.
What type of income did you earn?
It’s important to allocate your income correctly between the two states, to ensure you don’t pay too much or too little tax to each state. Check out our article on state income allocation. In the meantime, here are some general rules to keep in mind:
- Wages and self-employment income are generally taxable to the state where you were living and working when you earned the income.
- Investment income, such as interest, dividends, or capital gains, and retirement income are generally taxable to the state where you lived when you received them.
State rules can vary, so check the rules for each state if you’re unsure.
Example: Victor moved from Oregon to Colorado at the end of March. He earned $30,000 working in Oregon and $90,000 working in Colorado. His only other income was $3,000 in dividends, which he received in October. He’ll file an Oregon part-year resident return showing $30,000 of wages and a Colorado part-year resident return showing $90,000 of wages plus the $3,000 in dividends, as he received that investment income while residing in Colorado.
Did you get a new job?
If you changed jobs when you moved, your income is usually easier to separate between the two states because each job is tied to a different location.
If you moved across state lines but kept the same job, you’ll likely need to file in both states. For example, you moved to a border city in a neighboring state but continue commuting back to your old workplace in the other state. In some cases, you may qualify for a credit for taxes paid to another state, depending on the states involved.
Another possibility is that your new state may have a reciprocal agreement with your old state. A reciprocal agreement means certain states agree not to tax wages earned by residents of the other state. For example, Ohio and Kentucky have a reciprocal agreement. If you moved to Kentucky from Ohio but kept working at the same job in Ohio, you’ll only be required to pay income tax to Kentucky on the wages earned after the move because of this agreement.
If you moved between states without a reciprocal agreement and kept the same job while working remotely after the move, the income is often still taxable to each state where you lived and worked at the time you earned it. But note the rules for remote workers can be more complicated, so check your state’s requirements.
What type of tax returns should you file?
In the year you move, you’ll generally file two part-year resident returns, one for each state where you lived and worked. This is usually the case when you earned income in both states during the year.
Example: Kylie moved from Virginia to Maryland during the year to take a new job. Since she lived and worked in both states, she’ll file a part-year resident Virginia return and a part-year resident Maryland return.
Was your move temporary?
If your move is temporary, such as if you’re a student or in the military, it could change how you file. However, for most taxpayers who moved during the year, the rules above generally apply.
Things to do now
If you remain with the same employer after the move, notify them of your relocation as soon as possible. Your employer needs to update your address and adjust your state tax withholding to ensure you’re compliant with your new state's tax laws.
If your old and new states have a reciprocal agreement, check whether you need to submit a withholding exemption form to your employer. This form tells your employer not to withhold tax for the nonresident state where you work. Instead, your wages are usually taxed by your resident state.
If you changed employers when you moved, you’ll want to inform your old employer of your new address to ensure you receive your W-2 at the end of the year.
Conclusion
There’s a lot to think about when you move! While we can’t help you lift heavy boxes, we can help you file your state tax returns correctly. Our software simplifies the process of filing multiple state returns at the same time. If you have questions while preparing your state tax returns, reach out to our Customer Support team for help.