What should I prepare for tax-wise when moving from one state to another?

Question

In about 2 months, my wife and I will be moving to another state and I will be starting a new job - this move will be from the Capital Region of New York State to the St. Mary's County region of Maryland. Note that this question is not about the financial wisdom of such a move - for personal reasons, I want to make this move.

My question is - how can I prepare for my 2020 Tax Return in regards to this rather dramatic move in my life? What sort of preparations can I take to avoid an unnecessary tax burden related to moving from state-to-state, and is there any unavoidable tax burden that I should prepare for?

Specifically, this is regarding income tax, both at the federal and state level.

Answer 1

There should be no difference in Federal taxes. You will have to file a federal W-4 with a new employer.

You will want to do everything you can to make it clear to New York that you have moved. Register the cars, get drivers licenses, and register to vote in Maryland. Close all the bank accounts in New York, and open accounts in MD.

A big mistake that people make when they change states is that they don't submit a new state W-4. This is true if they aren't changing employers. It can be painful if no state tax withholding has been sent to the new state. The old state one will give you a refund but the new state may want to hit you with a penalty and interest.

One tricky part of MD income tax is that there is also a county/city income tax. Make sure you have enough withholding or you may get a surprise in April 2021.

Based on a your edit to the question mentioning Saint Mary County, here is a link to the tax rate for the counties:

Maryland's 23 counties and Baltimore City levy a local income tax which we collect on the state income tax return as a convenience for local governments.

The local income tax is calculated as a percentage of your taxable income. Local officials set the rates, which range between 2.5% and 3.20% for the current tax year.

You should report your local income tax amount on line 28 of Form 502.

Your local income tax is based on where you live - not where you work, or where your tax preparer is located. Be sure to use the correct rate for the local jurisdiction in which you live.

                    2019     2020   
Calvert County     .0300    .0300  
St. Mary's County  .0300    .0317  
Charles County     .0303    .0303

note .0300 is 3%

Answer 2

I have done this before (move to another state). Federal taxes will be the same. State taxes will be divided up between the two states dependent on the time you were in each.

For example if you were in Utah for 3 months from January before you moved, and then you were in Kentucky for 9 months, then you would pay 3 months worth of Utah taxes and 9 months worth of Kentucky taxes - for state taxes only. (Note: you would pay taxes for the 3 months of income in Utah and for the 9 months of income earned in Kentucky - do not divide your whole year's income into 3 and 9 months unless your income stayed exactly the same. Most tax software will calculate this automatically if the software is any good.)

New York to Maryland is not that dramatic of a move, but it sounds like your taxes and cost of living may decrease.

There are other factors though, the hidden taxes. A hidden tax is car registration and taxes. Some states make you pay car taxes or property taxes (for owning a car) in the new state when you move. Car registration fees may increase, increasing your effective "tax". Other hidden taxes include tolls, parking tickets, speeding tickets (an avoidable tax), license fees, unknown sales taxes (e.g. California has a tax on soda that is automatically applied if you buy it, you may miss this tax if you don't look at your receipt), and many more.

But, overall, since New York has some of the highest taxes in the country, then a move to any other state, with the exception of California or Hawaii, will likely result in a net decrease in taxes as well as a net decrease in living expenses for the same standard of living, after you conclude your moving expenses - unless perhaps you move from a very rural part of New York to a high-priced part of Maryland.

Answer 3

If you register your vehicle(s) within 60 days of moving to Maryland and can prove that you paid 6% or more in sales tax to the state where you bought the vehicle(s), then you owe $100 tax. Otherwise, you owe 6% or the difference between the 6% and what you actually paid in sales tax based on the NADA value.

Found at Motor Car Tag and Title:

The State of Maryland requires that all vehicles be registered within 60 days of moving to the state. As long as you register your vehicle within 60 days you will qualify for the Maryland excise tax. If you paid 6% or more in that state you are moving from you will be charged a flat $100 tax. If the state you are moving from charged less than 6% then deduct the percent from 6% and you will pay the difference.( Example- Virginia charges 4% sales tax. If you are moving to MD from VA you will pay 2% sales tax of the retail value).

If you do not register your vehicle within 60 days of moving to Maryland, you will be charged 6% sales tax on retail value of your vehicle (The MVA uses nada.com to value all automobiles and trucks).

FYI... I have lived in Salisbury (Eastern Shore), Fort Ritchie/Hagerstown (North Catoctin Mountains) and Lexington Park (St. Mary's County).

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