What Are the Tax Consequences of Moving to a Different State?
While you may own more than one home, and they can be in different states, you can only domicile in one state, meaning that only one home is considered your permanent home for tax purposes. Suppose you are moving out of Pennsylvania to a domicile in a different state. There are several tax implications to consider in that case, and consulting a well-respected tax professional serving Malvern, PA, is advised.
State Income Tax
The State of Pennsylvania imposes a state income tax that every qualifying resident must address. If you move to a different state, you’ll need to pay income tax according to their rules, and every state can set different requirements. There are, however, a handful of states that don’t have an income tax, including:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Pennsylvania’s individual income tax rate of 3.07 percent is relatively low. For example, neighboring states New York and New Jersey have individual income tax rates exceeding 10 percent.
It’s also important to note that – regardless of where you move in the nation – if you earn taxable income from any sources like the following, you’re required to pay federal income tax:
- Employment
- Dividends
- Interest earnings
- Trust distributions
- Pensions
- Retirement accounts
If You Own a Business
If you own a business and plan a move, the tax consequences can be even more substantial. Suppose you continue to run your business in Pennsylvania but move out of state. In that case, you’ll be required to continue paying taxes on the income generated by the Pennsylvania business in Pennsylvania. Your state of residence will tax you on your total income, but you’ll likely receive credit for the taxes paid in Pennsylvania on your state of residence return. From here, things only get more complicated.
State and Local Tax Implications
If your business moves with you, there is much to consider, including the state and local tax (SALT) implications. To begin, you’ll need to consider nexus – which refers to establishing a business presence. If you establish a nexus in your new state, you’ll likely need to register with the entity for business, which subjects it and your employees to the state’s tax requirements.
Questions that Help Determine Nexus
Some of the primary questions you’ll need to ask yourself regarding nexus include:
- Will your employees move to the new state, and will any remain in Pennsylvania to work remotely?
- Can your business have offices in more than one state?
- Where is your business property and inventory located?
If you have a nexus in more than one state, you may be able to shift your income tax obligation to the state with a lower tax rate.
Consult with Our Respected Tax Professionals Serving Malvern, PA,
Suppose you’re preparing to move yourself or your business out of or into Pennsylvania. In that case, there are some serious tax implications, and the tax pros at Phoenix Tax Consultants can help you weigh your best options and make the right choices for your bottom line. Learn more about what we can do to help by contacting us online or calling 610-933-3507 today.