Moving to a new state? From finding a place to live and hiring movers to finding a job and meeting friends, moving to an entirely new city and state can be an overwhelming experience. With so many things to do, it’s easy to forget one of the most important (if not, the most important) steps to relocating to a new state: establishing residency. Before, during and after you move, this task should be a top priority. For a quick rundown on how to establish residency for tax purposes and personal reasons, keep reading.
Cutting ties with your former state and establishing residency in the new one is essential for a few important reasons. Without it, your ability to pay property and state taxes, vote, drive, pay in-state college tuition fees, attend a public school and so on may be hindered. And don’t forget, there could be penalties coming from the IRS and other government organizations for having dual residency.
So why do you need to establish residency in a new state, anyway? Tax purposes are the most important reason for establishing residency after you move. The state you claim residency in should be the state where you spend the most time. Many states require that residents spend at least 183 days or more in a state to claim they live there for income tax purposes.
In other words, simply changing your driver’s license and opening a bank account in another state isn’t enough. You’ll need to actually live there to claim residency come tax season. The reason? Nine U.S. states do not require that residents pay income taxes. These states include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
However, many residents of these states have second homes in places that do require residents to pay income taxes (think: Connecticut, New York and California, where income tax rates are quite high). In order for residents of these states to avoid paying state income tax, they’ll need to live in a U.S. state that doesn’t impose state income taxes for at least 183 days. For example, snowbirds from New York often set up a second home in Florida and establish domicile in the Sunshine State to avoid paying New York income taxes.
Other reasons for establishing residency in a new state could include: obtaining lower state and business taxes, obtaining in-state tuition at a university or college, voting in a swing state where your vote is more effective or being zoned for highly rated public schools in another state.
Moving to another state for a new job opportunity is another reason, and it’s a common one. You could be accelerating your career or changing industries or are being relocated by your employer. Or maybe you’re moving for personal reasons. Those could include wanting a fresh start or a quality-of-life upgrade. Your nest might be emptying or you are retiring, or you might want a safer environment or a different climate.
