Moving to a new state comes with a lot of hassles: packing and unpacking, back strain, cramming heavy couches through tiny doorways, and filing two state tax returns. That’s right, two state tax returns. If you moved to a new state during the year, you may have to file a part-year tax return in both your old state and your new state. You know, just to make moving more difficult.
Which Form Do I Use?
Most states have forms for taxpayers who were part-year residents, but some use the same forms as full-year residents with special calculations. Sometimes one form is used for both part-year residents and nonresidents. Check your state tax authority’s website to see which form you should use. If your state has a special form for part-year residents (usually denoted with PY) that is the form you should use. You will have to fill out a part-year resident tax return for each state you were a resident of during the year.
Don’t confuse part-year residency with non-residency. Although there are some exceptions to this rule, in most cases, part-year residents actually lived in the state for part of the year, while nonresidents simply made income in the state without maintaining a permanent home there.
Dividing Income Between States
Part-year tax returns are usually prepared based on your total income for all states, then your tax liability is pro-rated based on how much income you made in each state. Let’s start by talking about how to split your income between two or more different states.
If you moved to a new state to start a new job, it’s easy to figure out how much income you made in each state. You will get a W-2 from each employer that will tell you how much you were paid. However, if you moved states while still working for the same company it can get more difficult.
If you kept the same employer, but moved to a different state, you’re only going to get one W-2, which will only say the total amount that your company paid you. That means you’re going to have to split the income up between the states on your own. There are two main ways to do this.
Use a paystub or payroll information from your employer:
This is the most accurate way to come up with the amount of income you made in each state. If you’re using a paystub, be sure it is from a pay period that ended around the time of your move.
Allocate it based on how long you lived in each state:
If your income is relatively the same every month, you can allocate it to each state based on the amount of weeks or months you lived there
For example, let's say you worked for 11 months of the year, taking one month off between jobs. You moved to your new state and started a new job in early June. This means you would have spent about 7 out of 11 months working in your new state. You would use the fraction 7/11 to allocate your income to the new state. The remaining income would go to your old state. You could also use weeks to allocate your income for more accuracy.
However, this method is much less accurate than using a pay stub, especially if your income fluctuated during the year. You should only use this method if you cannot get paystubs, time sheets, or other records that could help you estimate the actual income made in each state.
Unearned Income Vs. Earned Income
Earned income comes from wages, salaries, and tips, while unearned income comes from non-employment sources. Some examples of unearned income are interest, dividends, social security, and capital gains.
Unearned income is generally allocated to the state you were living in when you received it. For example, if you sold stock at a gain just after you moved into your new state, that income would be attributed to your new state.
However, if your unearned income cannot be attributed clearly to one state you would need to allocate that income to each state based upon the fraction of the year you lived there (e.g. 9 out of 12 months or 9/12).
What if I Have Both Unearned and Earned Income?
If you have both earned and unearned income you would simply calculate your unearned income in State A, and add to that your earned income in State A, to get your total income for State A. You would do that for each state you were a resident of during the year.
Now, let's look at pro-rating your tax liability in each state.