Contributed by: JanaA, FreeTaxUSA Agent, Tax Pro
Moving is stressful enough without adding taxes to the list. But if you’re crossing state lines, changing cities, or even just working remotely from a new place, your tax situation can change more than you might expect.
Where you live, where you work, and when you move all matter. Depending on your situation, you may owe tax to one state, two states, or possibly a city or local tax authority. You may also see changes to local taxes, sales tax, property taxes, deductions, credits, and filing requirements.
Let’s walk through some specifics:
Your state tax bill may go up or down
The biggest tax change when you move is usually your state income tax. Some states don’t tax wages at all, others have high income tax rates, and many fall somewhere in between.
If you move from a high-tax state to a low-tax state, you may end up paying less overall. However, if you move in the opposite direction, your tax bill could increase.
A mid-year move typically makes you a part-year resident in both your old state and your new state. As a result, both states will likely tax a portion of your income for that year:
- Income earned before the move is generally taxed by your old state.
- Income earned after the move is generally taxed by your new state.
In many cases, this means you’ll need to file two state tax returns for the same year. While it can be extra paperwork, it’s a very common situation, and we’re here to help you navigate it. For example, Sue lived and worked in Alabama before accepting a new job in Ohio. She packed up and officially moved to Ohio on October 1.
- Alabama Earnings (Jan 1 – Sept 30): She earned $60,000 while residing in Alabama.
- Ohio Earnings (Oct 1 – Dec 31): She earned $20,000 after relocating to Ohio.
Because she split her year between two states, Sue will file part-year resident returns for both:
- On her Alabama return, she’ll allocate her income based on her residency dates, paying Alabama state income tax only on the $60,000 she earned while living there.
- On her Ohio return, she’ll allocate the $20,000 earned after her move to ensure it’s taxed appropriately by her new state.
Remote work can make things more complicated
If you move from one state to another but keep the same job, taxes can get complicated quickly. States handle out-of-state employment in unique ways, so it’s highly recommended to review the specific remote work rules for both your old and new home states.
Working remotely across state lines can complicate your taxes, primarily because state tax obligations often depend heavily on where you physically perform the work. If you live in one state but work for an employer based in another, you might have to file tax returns in both states.
Often, employers withhold taxes for the state where their business is located, even after you move. To fix this, you can file a nonresident (or part-year resident) tax return in your employer’s state. Then when you file your resident return in your home state, you may be able to claim a credit for taxes paid to another state to reduce or eliminate double taxation. Using the above example, if Sue moved to Ohio and stayed working for her Alabama company, her tax filing would look a little different.
- Alabama Earnings (Jan 1 – Sept 30): She earned $60,000 while residing and physically working in Alabama.
- Ohio Earnings (Oct 1 – Dec 31): She earned $20,000 while working remotely after relocating to Ohio.
Because she split her residency but kept her Alabama employer, her income allocation is handled differently by each state:
- On her Alabama return, she must report her full $80,000 income. Alabama will tax the first $60,000 because she was a physical resident, and they will tax the remaining $20,000 because they source out-of-state remote work wages back to the employer's home state.
- On her Ohio return, she’ll file a part-year resident return and allocate only the $20,000 she earned while physically living in Ohio. To ensure that the $20,000 is not hit with double taxation, Sue will claim a credit for taxes paid to another state on her Ohio tax return to reduce or eliminate double taxation.
State income tax isn’t the only thing that can change
Depending on where you move, you might also run into city, county, school district, or local wage taxes.
These can make a bigger difference than people expect. A new city might have a relatively low state tax rate, but a higher local tax rate, which changes your total bill.
Property taxes can be a big deal if you buy a home. These vary a lot by location. Even two homes with the same purchase price can have very different tax bills depending on the county, city, and school district.
That means a home that looks affordable based on the purchase price may cost more than expected once property taxes are considered.
Another thing people forget about: sales tax
If your new state or city has a higher sales tax, you may pay more every time you make a purchase. You might not notice it on one receipt, but over the course of a year, it can add up.
Your deductions and credits may change
Different states offer different tax breaks. Moving can affect your eligibility for things like:
- Renter credits
- Property tax credits
- Child-related credits
- Retirement income exclusions
- Homestead exemptions
So even if your income stays the same, your final tax bill might not. One state may give you a credit that the other state doesn’t.
What changes if I move to another country?
If you’re moving internationally, the tax picture gets much more complicated.
You may have to deal with foreign tax rules, tax residency tests, reporting foreign income, credits for taxes paid overseas, and retirement account rules. Because international moves can involve both U.S. and foreign tax rules, it’s a good idea to talk with a tax professional before you move or file.
Final thoughts
Moving can have a real impact on your taxes, especially if you cross state lines or move mid-year. The good news is that most tax surprises are avoidable with a little planning.
If your multi-state move or remote work setup complicates your filing, FreeTaxUSA software tools and our customer service team are here to help you through every step.