Residency Requirements by State

What Determines Your Residency?

Tax wise, you would be considered a resident if you spend more than half the year living in a certain state or have established your domicile there. You may also establish residency by owning a business or being gainfully employed in a state even if you do not live there all year.

Key Facts About Residency Requirements by State

1. Some states have formal processes for establishing domicile, such as filing a declaration, while others more generally require showing you’ll indefinitely or permanently reside there.
2. You might need to still file tax returns in multiple states even if you don’t have a tax liability in both because of a tax credit or reciprocal agreement.
3. Many states adopt a 183-day rule for establishing residency.

The residency requirements vary for each state that levies its own income tax. If you live in a state that has an income tax, you may be required to pay this tax in addition to federal income tax. However, if you earned the income in a different state, you could owe tax to that state.

That said, you will most likely not be forced to pay income taxes to both states. This is because most states
maintain reciprocal agreements with neighboring states to ensure taxpayers’ earnings are only taxed once.

To facilitate the determination of your tax liability, you typically must provide documentation of which states you spent time in during a tax year and how long you were there. Common examples of proof of residency are as follows:

Residency Evidence

• Location of employment
• Location of business relationships and transactions
• Serving on the board of directors for a business or charity
• Voter registration
• Driver’s license or fishing/hunting permits
• Location of the school a family’s child attends
• Memberships in country clubs or social organizations

Dual Residency

As noted above, there are situations when a taxpayer might find himself or herself navigating around the
income tax codes of two different states. In these situations, the taxpayer is considered to have dual residency status in those states.

Circumstances that can result in dual residency are as follows:

Dual Residency Scenarios

• Having a second home in another state
• Temporarily relocating to another state for a job assignment
• Living in one state but having business activities in another state
• Having cut ties to a state but failing to establish residency or domicile in another state

How Do You Establish Your Domicile?

The term “domicile” refers to your primary residence or “home base.” Wherever you establish your domicile, that state will be the controlling jurisdiction for tax purposes.

The process for establishing your domicile varies depending on your state. In Florida, for example, you must file a Declaration of Domicile with the clerk of circuit court in the county that your home is located in.

Not all states have such formalities. For instance, the State of California Franchise Tax Board indicates the state has no formal process for establishing domicile. However, California does require physically residing in the locality and demonstrating that you intend on remaining there permanently or indefinitely. This can mean registering to vote in your city, opening accounts at a local bank or enrolling your child in a nearby school.

Can You Live and Work in Different States?

With the rise of remote work over the past few years, many Americans are now living in one state but have a job in another state. This can create complications during tax season, as both the state you live in and the state you work in may try to tax your wages.

However, the state you live in and the state you work in are likely to maintain a reciprocal agreement for tax purposes. This means you will only pay taxes to one of the states. Most of the time, you just need to fill out an exemption form to take advantage of the agreement.

Debra Smith, a former tax preparer at H&R Block, dealt with clients who lived and worked in different states frequently when she lived in a city near the border of two states. “Even if people have to fill out an income tax return and then calculate the tax they might owe, in every case I’ve seen, the person receives a credit for the income tax they paid for income earned in another state,” Smith told Annuity.org.

States with Reciprocal Agreements

Arizona

If you live in California, Indiana, Oregon or Virginia, you are exempt from paying income tax on wages earned in Arizona.

District of Columbia

If you don’t live in D.C. proper, you’re exempt from paying income tax for the district.

Illinois

Iowa, Kentucky, Michigan and Wisconsin residents are exempt.

Indiana

Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin residents are exempt.

Iowa

Illinois residents are exempt.

Kentucky

Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia and Wisconsin residents are exempt.

Maryland

D.C., Pennsylvania, Virginia and West Virginia residents are exempt.

Michigan

Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin residents are exempt.

Minnesota

Michigan and North Dakota residents are exempt.

Montana

North Dakota residents are exempt.

New Jersey

Pennsylvania residents are exempt.

North Dakota

Minnesota and Montana residents are exempt.

Ohio

Indiana, Kentucky, Michigan, Pennsylvania and West Virginia residents are exempt.

Pennsylvania

Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia residents are exempt.

Virginia

D.C., Kentucky, Maryland, Pennsylvania and West Virginia residents are exempt.

West Virginia

Kentucky, Maryland, Ohio, Pennsylvania and Virginia are exempt.

Wisconsin

Illinois, Indiana, Kentucky and Michigan are exempt.

Source: Northwestern Mutual

Taxpayers living and working in states that don’t have reciprocal agreements will have to file two tax returns. You’ll file a resident tax return for your home state listing all sources of income including what you earned out of state. You’ll also have to file a nonresident tax return for your work state, but this return should only list the income you made in that state.

Fortunately, this doesn’t usually result in paying double the taxes. Your home state will usually give you a tax credit on your resident tax form for the taxes you pay to your work state.

What Is the 183-Day Rule?

Many states that collect income taxes use the 183-day rule to decide who is considered a resident of their state. According to the rule, if you spend at least 183 days of a year in a state — even if you have established your domicile in another state — you are considered a resident of the state for tax purposes.

There are a few important factors to consider with this rule. The first is that any part of a day counts as a full day. That means, if you travel into the state just to meet a friend for lunch or go to a doctor’s appointment, your time there counts as a full day for residency purposes. Any day or time of day can count for this rule, too, not just time spent in the state during business hours or during the week.

If you frequently travel between states, it’s important to keep track of the number of days you spend in each state. You will automatically have to pay taxes to whichever state you establish your domicile in, but if you spend a lot of time in a second state, you may also end up paying taxes there, too.

You should also do some research into your states’ exceptions to the 183-day rule. Neighboring states may have reciprocal agreements regarding the 183-day rule, in addition to the agreements about living in one state and working in another. For example, residents of North Dakota or Michigan can spend more than 183 days in Minnesota without being charged taxes in both states.

Most states also grant exceptions to military personnel who are stationed in the state but have a permanent home in another state. Hospital treatment, not counting outpatient services, is usually not included in the 183-day count.

Tax Residency Rules by State

Each state has its own requirements to be considered a resident or part-year resident for tax purposes.

State Residency Rules by State