How to File a Part-Year Resident State Tax Return
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 number 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 paystub, especially if your income fluctuated during the year. You should only use this method if you cannot get paystubs, timesheets, or other records that could help you estimate the actual income made in each state.
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.
Pro-rating Your Tax Liability
Once you determine how much income you made in each state, most state tax returns will then use the percentage of your income attributed to that state to prorate your tax liability. This percentage is equal to the amount of income you made in the state divided by your federal adjusted gross income (your total income in all states). This represents the percentage of your income that was made in that particular state.
This percentage is then multiplied by the total tax amount for that state (which is based on your total income for the entire year) to prorate the tax liability. The amount of time you lived in the state does not matter here.
Let’s look at an example. Jane moved from Idaho to Virginia to start a new job during the tax year. Her total taxable income for the year was $100,000. She made $80,000 in Idaho and the remaining $20,000 in Virginia.
Using the tax table on her part-year tax return in Idaho, she has a tax liability of $5,000 based on her total income of $100,000. She would then multiply that $5,000 tax liability by 80% for a tax liability of $4,000. This is because she only made 80% of her total income in Idaho ($80,000 Idaho income divided by $100,000 total income). The same process would be repeated on her Virginia return, using 20% ($20,000 Virginia income divided by $100,000 total income) to prorate the Virginia tax liability.
Some states will use this same percentage to pro-rate deductions, which are subtracted from the income allocated to that state. The state tax amount is then based upon that taxable income figure.
Let's look at the same Jane example, with $15,000 worth of total deductions in Idaho. This deduction amount would be multiplied by 80% ($80,000 Idaho income out of $100,000 total income). This would give Jane an Idaho deduction amount of $12,000 (80% x $15,000).
To find Jane's Idaho taxable income using this method, the $12,000 prorated Idaho deduction amount would be subtracted from her Idaho income of $80,000 for an Idaho taxable income of $68,000. Her Idaho state tax would be based upon that amount.
What About Income I Made in the State Before I Moved There?
In the example above, if Jane had made income in Virginia before she physically moved there, she would also include that income in her Virginia total. This is because most states require that part-year residents pay taxes on income they made while they were a resident, as well as income received from sources within that state.
Payments and Tax Credits
On the payments section of each return, you will use the actual amount of tax withheld from your paycheck for each state and any estimated payments you may have made to each state. There is no adjustment made to these amounts.
Tax credits in each state may be subject to special calculations, so read the instructions carefully. Most importantly, don’t forget to take advantage of the credit for taxes paid to another jurisdiction. Most states offer this credit to part-year residents.
- Am I a Part-Year Resident or a Nonresident?
- How to File Multiple State Tax Returns