The amount you pay in taxes can have a big impact on your lifestyle, both throughout your working years and in retirement. Moving to a state without income tax can save you significantly, but it is important to take steps to avoid potential pitfalls before you start packing. The following tips can help you make the most of your move to a low-income-tax state.
#1 – Understand the statutory residency requirements of your new state.
The requirements for establishing residency can vary by state. Most states implement a 183-day statutory residence rule, meaning you must spend at least 183 days per year in the state to be considered a resident. However, some states have different requirements.
For example, Idaho has a 270-day requirement, and Hawaii has a 200-day requirement. Similarly, New York allows new residents to count partial days spent in the state toward their statutory residency requirement, while New Mexico only counts days in which the new resident spent a full 24 hours in the state.
Some states require that new residents maintain a permanent “place of abode” within the state, rather than temporary accommodations. For example, New York requires that new residents have a permanent residence for “substantially all of the taxable year” and reside there for at least 184 days throughout the year.
#2 – Consider the potential tax savings of moving from a high-income-tax state to no-income-tax state.
For high-income individuals, relocating from a state with high tax rates to a state with no income tax, such as Florida or New Hampshire, can result in substantial annual tax reductions. In Massachusetts, for instance, income exceeding $1,083,150 million (in 2025) is subject to a combined 9% tax rate, which includes a 5% flat income tax and a 4% “millionaire’s surtax.” Consequently, an individual earning $1.25 million would pay $69,174 in state taxes annually, while someone earning $2 million would pay $136,674.1
New Jersey and New York impose even higher top tax rates, with New Jersey taxing income exceeding $1 million at 10.75% and New York reaching 10.9% on ultra-high-income earners in 2025. That means a $2 million earner in New Jersey would be liable for nearly $200,000 in state income tax annually. In contrast, relocating to a state without income tax could eliminate this financial burden entirely.2
Although changing domicile entails more than simply forwarding mail, requiring a legally documented shift in residence and the declaration of intent, the financial incentive is evident: for high-income individuals, the tax savings can easily surpass six figures annually.
#3 – Establish domicile.
When moving to a new state, especially for tax purposes, it is important to properly establish domicile. Because states frequently conduct residency audits, you will need to carefully document your change of domicile and be ready to provide documentation if necessary.
As soon as you move to a new state, start working through the following actions to properly establish domicile:
- Purchase or rent a home in the state
- Obtain a driver’s license
- Register to vote
- Update your address with the U.S. Postal Service, the IRS, financial institutions and other service providers
- Maintain records of the time you spend in the state to meet statutory residency requirements
#4 – Be careful to avoid dual residency.
It is important to take steps to avoid being viewed as a resident of more than one state, as it can lead to double taxation. For example, if you meet the domicile requirements of one state and the statutory requirements of another state, both states may consider you a resident for tax purposes. Other situations that may qualify you as a dual resident include owning real estate in more than one state, failing to properly establish domicile in a new state, or living in one state while working in another state.
#5 – Consider potential reciprocity between states.
As mentioned above, if you live in one state and work in another, you may be considered a resident of both states for tax purposes. However, some states maintain reciprocity agreements that allow residents to pay state income tax to the state in which they live and avoid paying income tax in the state in which they work.
For example, Michigan has a reciprocity agreement with Ohio. If you live in Michigan and work in Ohio, you will not need to pay state taxes in Ohio.
If you plan to reside and work in separate states, you may want to consider any potential reciprocity agreements when deciding where to move.
#6 – Be wary of “convenience of the employer” rules.
If you plan to work remotely as an employee of a company in another state, you may be subject to “convenience of the employer” rules. Under these rules, your employer’s home state may claim a right to your earnings, which can lead to additional tax liabilities.
Before deciding to make a move for state income tax purposes, make sure you understand any convenience of employer rules that may be in place, as these can dilute the benefits of living in a low-tax state. As of January 2025, eight states have convenience rules, including:
- Alabama
- Connecticut
- Delaware
- Nebraska
- New Jersey
- New York
- Oregon
- Pennsylvania3
It is also important to be aware that if you improperly claim state residency, you may be subject to underpayment penalties and interest on any unpaid taxes, as well as additional scrutiny from tax officials. In extreme cases, misrepresenting your residency status for tax purposes can result in fraud charges.
As with many financial decisions, moving states for more favorable tax treatment can be a complex decision that requires careful planning and consideration. If you could use some help weighing the financial pros and cons of your move, we would love to have a conversation. To learn more about how United Capital Financial Advisors can help maximize your income and lower your tax liabilities, please contact us.
