Taxing question

[EdEmEr]

If I am moving from a tax friendly state to a non tax friendly state (ie higher state income tax) can I claim residency in my old state for the rest of fiscal year 2008 (June to Dec) and avoid paying those state taxes. ie, when I'm filling out my W2 for the new job can I just put my old address? By my calculations, its a svings of $2500.

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[Obnoxious Dad]

If I am moving from a tax friendly state to a non tax friendly state (ie higher state income tax) can I claim residency in my old state for the rest of fiscal year 2008 (June to Dec) and avoid paying those state taxes. ie, when I'm filling out my W2 for the new job can I just put my old address? By my calculations, its a svings of $2500.

State residency generally turns on your "indefinite intent" to stay in one place. When you move to take a new job that is long term, you lease or buy a place to live, you put your kids in school etc you are showing an indefinite intent to move to tax hell.

Even if the payroll people let you claim residency in your old state for withholding purposes, you probably won't get away with it. The state to to which you are moving has probably seen it all. Sooner or later your car registration, the next W2 etc will tell them that you are scamming the state. You will then be asked to explain yourself and you aren't Clarence Darrow. When your answer is "I goofed", you will get a bill.

You've chosen to move wherever you are going. Live with it.

 

[AndyFromMDTAXES]

Actually, the way it works for most states, you first pay taxes to the state where you work. You then calculate taxes on that income in the state where you live, and reduce that tax liability by the taxes paid to the state where you're working.

Here's an example I just gave to one of my clients. Let's look at a scenario of the following 3 states:

NH - no income tax
MA - 5.3% income tax
CA - 9.3% tax

If you live in NH and work in MA, you pay the 5.3% tax to Mass, and no tax to NH. If you live in MA, and work in NH, you pay no tax to NH, and then the 5.3% tax to MA. So MA gets 5.3% either way.

If you live in MA and work in CA, you pay the 9.3% tax to CA, and since that tax exceeds the 5.3% rate for MA, pay no taxes to MA. And if you live in CA but work in MA, you'll first pay the 5.3% tax to MA, and then the 9.3% tax to CA will be reduced by the taxes paid to MA, leaving a 4% tax to CA. Either way, you're paying the 9.3% tax.

Please note that some states have reciprocity agreements with their neighboring states, which means that you pay taxes based on your state of residency, no matter where you work. In that case, the state of residency you claim determines the rate that you'll pay state taxes.

 

[Obnoxious Dad]

I will stand by the proposition that indefinite intent is the basis of residency. However, Andy is right about the state where you work having the first stab at the income you earn there unless a reciprocity agreement is in place. I whiffed on that issue.

You might actually be able to be taxed in your old state if: 1) you could commute from the old state to the new job; and 2) the old state and the new state have a reciprocity agreement. However if you have to move to the new state where you'll be working, you'll be taxed in the state where you'll be working for the portion of the year you live in the new state.