How Do You Become a Resident of a State?

Technically, you become a resident of a state as soon as you enter it with the intention of living there. Legally, however, the process is a bit more complicated. Simply residing in a state isn’t enough. You'll need to demonstrate that you intend to make it your permanent home. If your residency status is unclear, you could be obliged to pay income tax in two states at once. Residency has several important legal ramifications as well. This guide will help you understand not only how to become a resident of a state, but why it should be one of your first priorities after a cross-country move.

Importance of Establishing Legal Residence

The main reason for establishing residency is to minimize your tax liability. In order to determine a taxpayer’s home state, the IRS applies two tests: the domicile test and the statutory residency test. A domicile is your true, fixed, and permanent home, which you have no intention of leaving (at present) and which you intend to return to, even if you aren’t currently living there. States are allowed to tax the global income of every person domiciled within their state.

Most people who are domiciled are also residents, but not always. Residency is based on your physical presence. For example, a serviceman from Connecticut who was stationed in San Diego for twelve months would not be a statutory resident of his home state, even if he owned a house there, because he spent the tax year in a different state.

Most states have reciprocity agreements that prevent a person’s income from being taxed twice, so in this scenario, the serviceman would be obliged to pay income tax to California, but not Connecticut. However, there are cases where individuals could be subject to double taxation, meaning they pass the domicile test in one state and meet the statutory residency requirements of another.

If a software engineer traveled from Albany to Boston for a six-month contract then returned home, he could wind up owing money to both New York and Massachusetts. Nonresidents who perform work out of state can only be taxed for the work they do there. Anything they earn in their home state is exempt, unless they meet the statutory residency requirements of another state. Then they would be caught in a situation where both states would be entitled to tax their entire income, regardless of its source.

Other Considerations

Though taxes are the main reason for establishing a new residence, it’s not the only one. Some health insurance programs, like Medicaid, are state-specific. In some states, where you live also determines which schools your children can attend. You cannot vote in local elections without proof of residency either. If you’re attending college, it also affects your ability to access in-state tuition, which is typically lower than it is for students from out of state.

How States Determine Residency

Tax rates vary significantly from state to state. In California, top earners pay 13.3 percent, while in North Dakota they pay only 2.5 percent. What’s more, nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) have no income tax at all.

Because states are aware that people move to avoid paying taxes, they require more than a new mailing address to exempt you. Though residency rules differ depending on where you live, in most states it’s determined by examining five factors.

Place of Abode. Where a person considers home. If you travel for most of the year, it's the place you intend to return to at the end of your journey.
Place of Work. According to the source rule, an employee is only required to pay taxes to the state where their work is actually performed. However, if you own business interests in another state, you may be required to pay tax on the income you earned from them.
Local Presence. Most places consider you a resident if you spend at least 183 days in the state.
Near and Dear. Sometimes known as the “teddy bear test,” states look to see where your most cherished possessions are located.
Family Ties. States also consider the location of your spouse, children, parents, and extended family.

Dual Residents

People who live and work in the same state generally don't have to worry about dual residency. It's primarily a concern for anyone who:

Commutes between states for work. Someone who lives in New Jersey, but whose office is in Manhattan, for instance.
Splits their time between different homes. Arizona has a lot of part-year residents who spend winters down south and summers up north.
Works remotely for a company based in another state. If you live in Colorado, but are employed by a company in California, you are not required to pay California income tax.
Recently moved to a new state. A homeowner who moved from Philadelphia to Dallas is required to file taxes with Pennsylvania, but only on the money they earned before moving to Texas.

How to Change State Residency

While a few states (Florida, Texas, Wyoming, Nevada, South Dakota) allow you to make a formal declaration of domicile, most rely on residency proofs, which demonstrate your intention to live in the state. To prove residency:

Purchase a New Home or Sign a Long-Term Lease in Your New Area
Apply For a New Driver’s License
Change Your Vehicle Registration
Open a New Bank Account and Close Accounts in Your Old State
Obtain a Library Card
Register Your New Address with the IRS
File Tax Returns in Your New State
Update Your Will According to the Laws of Your New State
Find a New Primary Medical Provider
Switch Your Voter Registration

These actions demonstrate to tax authorities that you’ve established a new domicile and should now be considered a permanent resident. Residency audits are rare, but happen occasionally, normally when someone moves out of a high-tax state like New York, New Jersey, or California. By documenting your actions, you can avoid this headache and ensure you don’t pay more taxes than you’re required to.

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