Filing your taxes can be complex enough when you live in one state year-round, but things become even more intricate if you move from one state to another during the tax year. When this happens, you’re generally considered a part-year resident in both your old and new states of residence. Each state wants to tax the income you earned while living there, which means you’ll likely need to file part-year resident returns in both states. In this comprehensive guide, we’ll explain what a part-year resident is, how to file correctly, and what you need to watch out for to avoid double taxation.
What Is a Part-Year Resident?
A part-year resident is someone who was a resident of a state for only a portion of the tax year. This typically occurs when you move from one state to another, whether due to a job, family reasons, retirement, or other life events. Each state has its own rules for determining when residency begins and ends, but most states follow similar guidelines based on where your permanent home is located and where you physically resided.
Examples of When You Become a Part-Year Resident
- You moved from New York to Florida in June to start a new job.
- You sold your home in Illinois and bought a new one in Arizona in September.
- You retired and relocated from California to Nevada in the middle of the year.
Who Needs to File a Part-Year Resident Return?
If you moved during the tax year and both your old and new states collect income taxes, you’ll likely need to file part-year resident returns for both. These returns allow each state to tax you only on the income earned while you were a resident of that state (and possibly on income sourced to that state even after you moved).
Step-by-Step Guide to Filing Part-Year Resident Returns
Step 1: Identify the Dates of Residency
Start by determining the exact date you moved out of one state and into another. This date will divide your income, deductions, and credits between the two states. Use leases, home closing dates, utility bills, or employer records to establish a clear timeline.
Step 2: Gather Income and Tax Documents
Collect all your tax documents, including:
- W-2s and 1099s
- Pay stubs (for income earned before and after the move)
- Bank statements, investment income summaries
- Employer letters or relocation records
In some cases, your employer may provide separate W-2s for each state. If not, you may need to allocate wages manually based on pay periods or pay stubs.
Step 3: Allocate Income Between States
Each state only taxes income earned while you were a resident (unless you had income sourced to that state while living elsewhere). There are a few ways to divide income:
- Calendar method: Divide the total income based on the number of days lived in each state.
- Actual method: Use pay stubs and records to determine actual income earned during each residency period.
For example, if you earned $80,000 in the year and moved on July 1, you could attribute $40,000 to each state using the calendar method. However, if your income varied throughout the year, the actual method may be more accurate.
Step 4: Prepare State Returns
Most states have a checkbox or section to indicate you’re filing as a part-year resident. Some states have separate forms specifically for part-year filers (e.g., California Form 540NR, New York IT-203). Follow your state’s specific instructions to complete the return properly.
You’ll typically be required to:
- Report total income for the year
- Break out the amount attributable to that state during your residency
- Provide the date range you were a resident
Step 5: Claim Credits to Avoid Double Taxation
If you earned income in your former state after moving, or if both states attempt to tax the same income, you may be eligible for a credit for taxes paid to another state. This credit is usually claimed on the return of the state you reside in at the end of the year, and it reduces your tax liability by the amount paid to the other state (up to your state’s tax rate).
What About Nonresident Returns?
In some cases, you may also need to file a nonresident return. For example, if you lived in State A for part of the year, then moved to State B, but continued to earn income in State A (such as rental income or remote work), State A may require you to file a nonresident return for that income. This is in addition to your part-year return in State B.
States Without Income Tax
If one of the states involved in your move has no income tax—such as Florida, Texas, Washington, or Nevada—your filing requirements will be simpler. You’ll only need to file a part-year return for the income-taxing state. The non-income-tax state does not require a return unless specific exceptions apply (like business franchise taxes or real estate filings).
Special Rules and Considerations
- Remote Workers: If you work remotely and live in multiple states, income-sourcing rules can vary. Some states tax based on where the work is performed, while others use employer location.
- Military Personnel: Military members often retain their state of legal residence even if stationed elsewhere. Special residency rules apply.
- Moving for a Job: Some states may allow you to deduct moving expenses (for tax years prior to 2018 or if you’re active-duty military).
Common Mistakes to Avoid
- Reporting all income in both states: Be careful not to duplicate income across two state returns. Use part-year forms properly to avoid overreporting.
- Not allocating properly: Misallocating income can lead to underpayment or overpayment of taxes.
- Failing to claim credits: Missing the credit for taxes paid to another state can cause you to pay more than you owe.
- Ignoring local or city taxes: Some municipalities also impose taxes that must be addressed when moving.
Using Tax Software or a Tax Professional
Most reputable tax software platforms (TurboTax, H&R Block, TaxAct, etc.) support part-year filings and will walk you through the process. However, if your move involved multiple states, complex investments, or dual-sourced income, consider working with a tax professional to ensure compliance and accuracy.
Recordkeeping Tips
To make your part-year filing smoother, maintain clear records throughout the year, such as:
- Lease agreements or home purchase/sale documents
- Utility bills showing when you started/stopped service
- Employer relocation letters
- Pay stubs identifying income earned before and after the move
Conclusion
Filing part-year resident returns may seem daunting at first, but with proper documentation, a clear understanding of your residency dates, and careful income allocation, the process can be manageable. The key is to avoid double taxation by using credits wisely and reporting only the income attributable to each state. Whether you’re preparing your returns yourself or working with a professional, understanding how to file as a part-year resident is essential for staying compliant and minimizing your tax burden during a year of transition.
