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Moving or travelling can add complexity to your tax filings. EY TaxChat™ can help you navigate through the complexities of state filing requirements.
In brief
Whether you moved near or far, for a career opportunity or for personal reasons, there are several things to consider:
- Understand the tax requirements in your new state location.
- Be prepared to file multiple state tax returns in the year of move.
- Know the risk of establishing state residency when spending significant time working in multiple states.
- Consult a tax professional. EY TaxChat™ can help
Each year, millions of people move to new locations. While packing up and heading to a new destination is exciting, be sure to take time to understand your new tax filing implications associated with the move.
Know the income tax requirements in your new location
Each state has its own unique tax laws, administered by its own taxing authority. Once you become a resident of a new state, you will be subject to the applicable tax it imposes on individuals. In most cases, this means you’ll have a new state tax return to file. Keep in mind that income tax varies widely across the states — seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) do not impose any income tax on individuals, whereas California’s income tax has a top marginal tax rate of 12.3%!
You may have to file multiple state tax returns in the year of your move
When you leave your old state and move into a new state, you are generally considered to be a part-year resident in each state for the period you lived there. As an example, if you resided in New York for half of the year before moving into California for the second half of the year, you will have to file a New York part-year resident tax return to report your income for the first half of the year and a California part-year resident tax return to report your income for the second half of the year.
Did you spend significant time in another state but didn’t permanently move there?
This is one area to watch out for. States have varying rules about what constitutes residency for tax purposes. As an example, if a Florida resident travelled to New York frequently and for extended periods of time, totalling more than 183 days in New York in a given year, New York may classify the individual as a statutory resident for tax purposes. A scenario like this can have a significant tax effect, as all of the individual’s income is potentially taxed in New York (a higher income tax state) rather than Florida (a zero-income tax state).
If you did spend time in other states, but not enough to be classified as a resident, you still may have additional tax filings for the year. This is a common scenario for employees who travel for work to various states in a given year. In some cases, the employee will receive a W-2 from their employer, indicating the amount of wages that were earned in each state.
Many times, this will result in filing a non-resident tax return for these states to report the allocated wages. While this may add complexity and additional tax filings, there is a silver lining – in most cases, your resident state will allow you to claim a credit for the taxes you paid to non-resident states. This is a key concept of taxation, as it avoids individuals being unfairly “double taxed.”
Some practical tips for moving
There is certainly added tax complexity and considerations as you travel and move. However, here are some practical tips to remember as you embark on your journey.
- Establish residency in your new state. Each state has specific requirements to become a legal resident, however, basic steps such as: updating your mailing address for your new home, obtaining a driver’s license in your new state, and registering to vote in your new state are widely accepted and great first steps of the process.
- Inform your payroll department of your move. Providing accurate information such as the date of the move and your new address will ensure your payroll records and wages are reported correctly, which will help when it comes time to file your tax returns.
- Travel often and concerned about becoming a tax resident of another state? Keep records of your travels and retain receipts of travel costs as supporting documentation. There are several business and travel apps that can help you track your whereabouts, too!
About EY TaxChat™
EY TaxChat is an on-demand mobile service that connects you with a licensed tax professional who will prepare your taxes and file them for you. Click here to learn more and register for EY TaxChat at any time, from anywhere, or by downloading the app from the Apple App Store or GooglePlay Store.
This information is provided solely for educational purposes; it does not take into account any specific individual or entity’s facts and circumstances. It is not intended, and should not be relied upon, as tax, accounting or legal advice. Ernst & Young LLP expressly disclaims any liability in connection with the use of this presentation or its contents by any third party. Neither EY nor any member firm thereof shall bear any responsibility whatsoever for the content, accuracy or security of any third-party websites referenced.
Summary
Moving or traveling creates exciting and new opportunities, but it can also create added complexities to your tax filings. Working with a tax professional, updating your payroll records and tracking your time spent in each location will help ease the burden.
