Taxation details when changing states in the middle of the same job

Question

I looked up the answer to this question with the specific details that it has but couldn't find one.

Let's say you have a work-from-home job with a NYC-based company. You are a NY resident and you live in NYC. One month into the job you decide (your choice) to change your state and go to Seattle and become a WA resident. The company does not have an office in WA. You notify the company of your address change. I am assuming the new address is what gets listed on your W2 and as far as the IRS is concerned, you are a WA resident. In this case, what happens to the NY/NYC tax that has been withheld from your paychecks up to that point? Will you be paid back the NY state tax when you file your taxes the following April?

Answer 1

From a comment you made to the original question:

If the W2 shows the new address how does the IRS know you've been in NY?

New York state and a few others are aggressive regarding state income taxes. Any connection to their state and they will tax the income. Plus the IRS only cares about the lines on the W-2 related to federal income, and federal taxes withheld. They don't care about the actual states listed in the state section.

Let's say you have a work-from-home job with a NYC-based company. You are a NY resident and you live in NYC. One month into the job you decide (your choice) to change your state and go to Seattle and become a WA resident. The company does not have an office in WA.

From the point of view of New York state all the income from before you execute the move is NY sourced income, so they will tax it. But because the move wasn't for work, they will also want to tax the income after you move because the company is in New York.

Going forward with this question lets just call the states State A and State B. Neither is aggressive regarding income, they have reciprocity and it only depends on where you live. None of this is true about the states in your actual question.

You notify the company of your address change. I am assuming the new address is what gets listed on your W2 and as far as the IRS is concerned, you are a WA resident.

The thing to remember the address on the W-2 only is used to mail the form to you. Now most people get it emailed, or download it from a company or payroll website, but the address is only the mailing address that you have in the January after the tax year ends.

The W-2 reflects how the company processed each paycheck, and how much was withheld and sent to the Federal government, State Tax authority A, and State Tax authority B. The W-2 can actually show income and withholding from Multiple states just in case you move during the year.

So if you get paid every two weeks and the first 6 checks were when you lived in state A, and the last 20 checks were when you lived in state B, but you were slow to tell HR about the move by changing your state W-4 from state A to state B until 5 more checks had been processed; then the W-2 will show funds were withheld at an 11 to 15 split instead of 6 to 20. This means that you should get a refund from state A and owe more money to state B.

Will you be paid back the NY state tax when you file your taxes the following April?

Keeping with generic states: You will be filing 3 income tax returns: Federal, state A and state B. That is where you settle up between the numbers on the W-2 and the reality of your situation. The W-4 only reflects how those checks were processed, not how the income and withholding should have been allocated.

But Because New York is aggressive, and Washington state doesn't have any income tax, New York state will be taxing all the income.

Answer 2

When you move from one state to another, you end up being a partial resident. You remain resident until you move, and you cease being resident after. So all income earned before the move is still taxed by the old state as if you were its resident (because you were).

New York State specifically will tax your employment income even after the move, because you moved by your own decision and not because your company asked you to. As such they consider you liable for taxes earned from NYS employers regardless of whether you actually physically reside there or not. They will no longer have claim on your other income (capital gains, dividends, etc) that happened after the move (they'll still tax all that happened before the move as you were resident).

This is something unique to the New York State. California has some similar, but not as draconian provisions.