Multi-State Tax Issues and Residency (2024)

Multi-state tax issues impact many taxpayers, including businesses, employees, and individuals. If you are someone who lives portions of the year in multiple states or moves around throughout the year, multi-state tax issues are especially relevant to you. Different states have different income taxes, property taxes, and more. This can make filing taxes complicated if you live in multiple states, own a business with employees in other states, or otherwise have to deal with taxes in several states.

Defining Domicile and Residency

Residency and domicile are important terms when determining multi-state tax concerns, as your state of residency is important when filing taxes. These terms have different legal definitions.

Your domicile is your permanent home, or where you have established a fixed and primary location to live. You can only have one domicile, and this establishes your home state. A domicile might be established by some of the following factors:

• The length of time you spend in the home
• Whether your family lives in the home
• If you have pets in the home
• If you own a main physical home and/or do business near the home
• Where you keep your personal items
• Your intent for a home to be your domicile

Some states have residency audits, which attempt to determine if an individual has established a domicile or not. The above factors may influence whether you have established a domicile in the state or in another state. The definition of domicile is often vague, which is why each state has adopted a more strict definition of residency. However, these definitions and laws vary.

Your residency refers to a place you live. A domicile can be a residency, but not all residencies are your single domicile. To have a residence or residency, you must establish it with the individual state’s statutory test. A statutory test refers to the period of time you can stay in a place before it is considered a residency. Many states have a statutory test of 183 days, which is half the year and one day. A person can be a resident and establish a residency in multiple states.

How to Change Your Domicile State

Changing your domicile requires you to end your domicile status with one state and begin a domicile in another state. Although obvious, this can be complicated. Ending domicile in one state is often harder, as the state will often require proof of your change in domicile to stop taxation.

The exact requirements for proving your change in domicile will depend on the state. Because the definition of domicile is more subjective than the definition of residency, you have to prove this based on the circumstances. Often, you have to prove your newly established residency and physical presence in the domicile. As the taxpayer, you shoulder the burden of proof. You can document your residency and domicile through steps such as:

• Obtaining a driver’s license in the new state
• Registering to vote in the new state
• Changing your mailing address
• Opening new bank accounts in the state and closing old bank accounts
• Keeping track of records of your physical presence, such as bank account and credit card transactions, travel tickets or other documentation, location tracking, or internet and cell phone bills
• Registering your vehicle in the new state
• Getting a local library card
• Buying or leasing your new residence
• Selling or renting the old residence

If you are moving to another state for a short period of time, you don’t need to change your domicile. Your domicile can remain the home you intend to return to, and you may or may not establish a residency in the new location, depending on how long you remain there.

FAQs About Multi-State Tax Issues and Residency

What Are the Big Changes for Taxes in 2024?

Certain tax credits revert to the level they were at in 2019, meaning that taxpayers may see lower tax returns. The Child Tax Credit decreases, and individuals who received $3,600 previously receive $2,000 per dependent for the 2022 tax year. Under the Earned Income Tax Credit, those without children who were eligible for around $1,500 in 2021 are eligible for a maximum of $530 in the 2022 tax year. The Child and Dependent Care Credit decreases from $8,000 in 2021 to a maximum of $2,100 for the 2022 tax year.

What States Are Cutting Income Taxes in 2024?

In 2024, the states that have passed policies to limit personal or corporate income taxes are:

• Arkansas
• Connecticut
• Indiana
• Kentucky
• Montana
• Nebraska
• North Dakota
• Utah
• West Virginia

Not all of these income tax rate cuts will benefit taxpayers filing for personal income taxes. These states add up to 26 states that have reduced the income tax rate over the past few years.

Did Tax Withholding Change for 2024?

Tax withholdings may have changed for several taxpayers in 2024 due to the changes to federal income tax brackets. The general trend is an increase of 7% for federal tax bracket filings. It’s always wise to review tax withholdings due to these inflation changes and if you have experienced any significant changes in your life. These changes include being married, getting divorced, receiving a significant inheritance, or having a change in income.

How Does Getting Taxed in Two States Work?

There are several unique considerations when you live in multiple states or work in one state and live in another. These considerations depend on your individual circumstances and rely on:

• The state you earn your income in
• Which states you live, work, or have a residence in
• Reciprocity agreements between states
• If you are working the same job or have new or multiple jobs
• The residency requirements of the state you live in

Depending on these factors, you may be required to split your sources of income before or after calculating each state’s tax.

Help From the Tax Professionals at TaxSmith, LLC

Filing multi-state taxes is often very complicated, especially when you’re unsure of your domicile state or are attempting to change it. This process can be easier with an experienced multi-state tax attorney. At TaxSmith, LLC, our attorneys want to understand the unique situation you are facing and use our years of knowledge to help you efficiently sort out your tax issues. Contact our firm today.