How to File a Part-Year Resident State Tax Return
Did you move to a new state during the tax year?
Moving to a new state comes with a lot of hassles: packing and unpacking, establishing utility hookups...and filing two state tax returns. That’s right, two. You might have to file a part-year tax return in both your old state and your new state if you relocate during the tax year.
Which Form Should You Use?
Many states have forms for taxpayers who were residents for only part of the year, but some use the same forms as full-year residents with special calculations. And sometimes the same 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, it's usually denoted with "PY" and that's the form you should use. You'll have to fill out a part-year resident tax return for each state where you lived during the year.
Part-Year Residency vs. Non-Residency
Don’t confuse part-year residency with non-residency. Although there are some exceptions to this rule, part-year residents are usually those who actually lived in the state for part of the year. A non-resident simply made income in the state without maintaining a home there. You would typically file a non-resident return if you only worked in that state.
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 location.
This is easy to figure out if you moved to a new state to begin a job there. You'll receive a W-2 form from each employer, and each will tell you how much you were paid for that particular job. But it can get more complicated if you moved while still working for the same company because in this case you would only receive one W-2.
The W-2 will show the total amount that your company paid you, so you’ll have to split the income between the states on your own. There are two ways to do this.
Allocate 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, you might have worked 11 months of the year, taking one month off between jobs. You moved to your new state and started working there in early June. This means you would have spent about seven of 11 months working in your new state.
You would use the 7/11 fraction 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.
Use Payroll Information From Your Employer
Using a paystub to allot your income is usually more accurate, especially if your income fluctuates during the year. Try to get paystubs, timesheets, or other records from your employer to help you estimate the actual income made in the first state you worked in. If you’re using a paystub, be sure it's from a pay period that ended right around the time of your move.
This will tell you almost exactly how much you earned from that job.
Unearned Income vs. Earned Income
Earned income derives from wages, salaries, and tips, while unearned income comes from non-employment sources. Some examples of unearned income include interest, dividends, some Social Security benefits, and capital gains.
Unearned income is generally allocated to the state where you were living at the time you received it. For example, if you sold stock at a gain just after you moved to your new state, that income would be attributed to your new state.
Otherwise, if your unearned income cannot be attributed clearly to one state, you'll have to allocate it based upon the fraction of the year you lived in that state—for example, nine out of 12 months would be 9/12.
If You 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 where you were a resident during the year.
Prorating Your Tax Liability
State tax returns will then use the percentage of your income attributed to that state to prorate your tax liability after you've determined how much income you made in each location. This percentage is equal to the amount of income you made in the state divided by your federal adjusted gross income, which would be 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. The amount of time you lived in the state doesn't matter here.
As 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. 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 use this same percentage to prorate deductions, which are then subtracted from the income allocated to that state. The state tax amount is based upon the taxable income figure that results.
Let's look at Jane's example again and say that she had $15,000 in 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% times $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 You Made in the State Before You Moved?
If Jane had earned income in Virginia before she physically moved there, she would also include that in her Virginia total. 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
You'll use the actual amount of tax withheld from your paycheck for each state, and any estimated payments you might have made to each state, to make calculations for these amounts. No adjustment is made to payments and tax credits.
Tax credits in each state can be subject to special calculations, so read the instructions carefully. And don’t neglect to take advantage of the credit for taxes paid to another jurisdiction. States should offer this credit to part-year residents after the U.S. Supreme Court ruled on May 18, 2015, that two states can't both tax the same income.
New Jersey Treasury Division of Taxation. "NJ Income Tax – Part-Year Residents." Accessed Feb. 7, 2020.
Massachusetts Department of Revenue. "Personal Income Tax for Part-Year Residents." Accessed Feb. 7, 2020.
California Franchise Tax Board. "Part-Year Resident and Nonresident." Accessed Feb. 7, 2020.
IRS. "What Is Earned Income?" Accessed Feb. 7, 2020.
New Jersey Division of Taxation. "Part-Year Residents and Nonresidents, Understanding Income Tax," Page 14. Accessed Feb. 7, 2020.
Supreme Court of the United States. "Comptroller of the Treasury of Maryland v. Wynn," Pages 1-2. Accessed Feb. 7, 2020.