A new year means new beginnings for taxpayers, and sometimes that means moving to a new state. One of the things that taxpayers commonly overlook when moving states is taxes. It’s important to note that not all states have the same tax laws. Some states do not have state income tax while others may tax your retirement income. Here’s a quick tax checklist for moving states.
Check the Income Tax Rate
When researching where to move, finances are sure to be a top priority to keep in mind. Sometimes this means choosing a state that has a lower cost of living. Another thing to consider is the state income tax rate. Certain states do not tax any income. These include:
- South Dakota
Florida does not tax personal income but does tax certain business assets. New Hampshire does not tax W-2 wages but does tax certain investment and business income. California, Hawaii, New Jersey, Oregon and Minnesota currently have the highest income tax rates.
Check Your Filing Requirements
If you lived in two or more states during a year, you would need to check the filing requirements for each state. The requirements are typically listed on the state’s tax authority website. In most cases, you’ll need to file a return in all states you lived in during the tax year. To do this, you’ll need to calculate your earnings in each state and determine the percentage of your income that was earned in each state. You’ll need to file the relevant tax forms in each state, usually as a resident or part-year resident. It’s important to note that two different states legally cannot tax the same income, so moving states does not necessarily mean you will pay more taxes.
There may be some scenarios in which you moved states, but still work in your old state. In this case, you would likely need to file a tax return in the state where you live, as well as a nonresident tax return in the state where you work. You may also want to check the tax laws in your new state. Finding out how your new state handles itemized deductions, state tax deductions, or federal tax changes can help you avoid unexpected issues during tax time.
Check Which Income Types Are Taxable
If you have multiple sources of income, it is vital to check how the income will be taxed in your new state. Interest and dividend income is typically taxed by the state in which you are a permanent resident. In addition, some states require estimated tax payments on some incomes. Not knowing the rules or deadlines for these can result in underpayment penalties.
Investments that are tax-exempt in your old state may suddenly be taxable in your new state. While all states do not require you to pay taxes on federal bonds, not all states have the same definition of a federal bond, meaning some tax bonds and others do not. Retirement income is also taxed differently in certain states, so if you are moving because of retirement, you may want to check the tax laws surrounding retirement income first.
Check Your Eligibility for Moving Expense Deductions
The 2017 Tax Cuts and Jobs Act (TCJA) eliminated the moving expense deduction for taxpayers, unless they are active-duty military members. However, this act is set to expire beginning in 2026.
Tax Relief for Those Moving States
It goes without saying that filing taxes after moving states can become very complex, especially if you have several income sources. Sometimes the new state you move to may not be your first choice, like when you’re an active-duty military member or are relocating for a job. In other cases, you may have the option to choose which state you want to relocate to. In these cases, researching tax laws in your new state can save a lot of time, money and stress during tax time. It may be best to seek the help of a credible tax preparer or professional to look at your tax situation. Give Optima a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals.