Rethinking Residency: Why Now Is the Right Time for High-Income Earners to Revisit Their Domicile and Tax Exposure

As states continue to reassess their tax policies, it is common for taxpayers to review their residency status and how that impacts their tax position. This is particularly common in high-tax states such as New York, where ongoing fiscal pressures have heightened attention on the state and city tax base and the contributions of high-income taxpayers. As a result, many high-net-worth individuals are increasingly evaluating whether their current residency and tax domicile align with their financial goals, including considering relocating to states with low- or no-tax jurisdictions. Given these considerations, now is an ideal time for high income earners to review their residency, as well as their tax domicile and overall tax exposure, and to reassess whether remaining in their current state continues to make financial sense.

Why Residency Still Matters

States have the right to tax residents on 100% of their income, wherever earned. For example, New Yorkers face substantial state tax exposure merely by living in the state. For tax purposes, residency is determined by two tests:

• Domicile: One’s permanent home, the place an individual truly intends to remain. One’s domicile is where one returns when on a trip; it’s one’s personal headquarters, often evidenced by various factors, including the presence of time, the location of items near and dear, and the place of the nuclear family.
• Statutory Residency: Even if an individual’s domicile is not in a certain state, they can be taxed as a resident of that state if they maintain an abode, which is a residence or dwelling that a person permanently maintains (whether owned or not) and that is suitable for year-round use, and spend more than 183 days in the state.

Why Now Is the Right Time to Act

Between shifting work arrangements and a renewed focus on tax policies, now is the time for high-net-worth individuals and families to pause and reassess the following:

• Domicile factors: Where are one’s most cherished possessions kept? Where do one’s children go to school? Where is the individual’s primary home base?
• Day-count tracking: How many days is one in a specific state? Are partial days being considered in the count? Is the total number of days in a specific state being carefully and consistently monitored to ensure it does not exceed 183?
• Permanent place of abode risks: Does the individual maintain an apartment in a state in which they have unfettered access? Does an individual have their name on the title, or lease agreement, of a dependent’s or relative’s apartment in a specific state?
• Lifestyle footprint: Does the location of one’s work, family ties, medical providers, and social connections support their stated residency?

A proactive review can help identify gaps and reduce the risk of an audit, as states, like New York, are known for aggressively challenging taxpayers who claim to have left their state. For those considering a move, or already spending significant time in another state, the real work begins with proving that the new state is truly home.

Moving to a No or Low Tax State

When a taxpayer in a high-tax state finally decides to establish residency in another state, there are several key action items they’ll need to complete to provide proof of their change of residency. These items help demonstrate intent to move their true home for tax purposes:

1. Register to vote and actually vote as a resident of the state
2. Obtain a driver’s license and automobile registration in the state
3. Execute their estate-planning documents in the state
4. Spend more than half the year physically present in the state
5. Own, lease, and occupy a residence in the state
6. Transfer financial accounts to the state
7. Withdraw membership in clubs or organizations outside of the state
8. Transfer religious affiliations to the state
9. Open a business office and transact business in the state
10. Notify the Social Security Administration of their new state address
11. Use their new state address on their passports
12. Register their new state address with their insurance company and Medicare
13. Have all income, pension, dividend/interest checks, and other payments mailed to their new state address
14. Move items “near and dear” to their new state residence

By completing these steps, in addition to others based on your particular set of circumstances, the individual creates a clear record of intent and action that helps establish the new state as their domicile.

How a State & Local Tax Provider Can Help

State & Local Tax (SALT) professionals, like the team at Anchin, work with individuals and businesses to navigate complex tax rules across multiple jurisdictions. Their role includes strengthening compliance frameworks, identifying potential audit risks, managing interactions with state tax authorities, and helping to establish residency in a new state. Whether you’re considering a move or simply want clarity on your current position, revisiting your residency status now can help protect you from unexpected tax liabilities in the future.

For more information on residency planning and audit risk mitigation, contact Alan Goldenberg, Principal and Leader of Anchin’s SALT and Tax Controversy groups, or your Anchin Relationship Partner.

Business and corporate taxpayers, take our free SALT assessment today to evaluate your State and Local Tax risk and compliance!