Filing taxes can already be complicated. Moving from one state to another may raise questions about residency, income sourcing, payroll withholding, investments, and which state tax returns you need to file.
For physicians and dentists relocating for a new position, completing training, changing employers, or making a lifestyle change, the timing of the move may also coincide with a signing bonus, relocation reimbursement, investment sale, or other significant financial decisions.
The original version of this article was written by Spaugh Dameron Tenny, based on responses from Charles Whaley, CPA, CHBC, Director of Tax Services for The HMC Family of Companies. We updated the article in July 2026 to reflect current tax information and additional financial planning considerations for physicians and dentists moving between states.
The answer generally depends on two questions:
1. Where were you a resident when the income was received?
2. Where was the income earned or sourced?
Your state of residence will generally tax your income from all sources during the period you are a resident. A state where you work may also tax compensation earned for services performed there, even if you are not a resident.
This means you could have filing obligations in more than one state during the year of your move.
For example, a physician who moves to North Carolina in July may need to file:
The exact filing requirements will depend on each state’s residency, income sourcing, and minimum income rules.
You will often need to file a part-year resident return in both your former and new states when:
A part-year return generally reports the income taxable to that state during the portion of the year you were considered a resident.
You may also need a nonresident return if you earned income in a state where you did not live. This can happen when a physician or dentist:
| Filing status | When it may apply |
| Full-year resident | You were considered a resident of the state for the entire tax year |
| Part-year resident | You moved into or out of the state during the year |
| Nonresident | You earned state-sourced income without establishing residency there |
These categories are not interchangeable, and the definitions vary by state.
For tax purposes, “resident” refers to the state where you are legally considered to live. It is unrelated to a physician’s medical residency or training status.
Your physical moving date is important, but it may not be the only factor a state considers.
Residence generally refers to where you live. Domicile generally refers to the place you consider your permanent home and intend to return to when you are away.
To determine whether your domicile changed, a state may consider factors such as:
No universal rule establishes residency after exactly 183 days. Some states use day-count tests as part of their rules, but these tests vary and may be combined with requirements involving a permanent place of abode.
Maintain records that document the date and circumstances of your move, including:
These documents may be important if your former or new state questions your residency status.
Wages are generally sourced to the state where the work was performed. Your resident state may also include those wages in your total taxable income.
When the same income is taxed by two states, your resident state may allow a credit for qualifying income taxes paid to the other state. However, credit rules vary and may not eliminate all differences between the states’ tax calculations.
Some neighboring states have reciprocity agreements that allow qualifying employees to pay income tax on wages only to their state of residence.
These agreements:
Do not assume reciprocity applies simply because your home and work states share a border.
A signing bonus may be paid before you begin work, after you relocate, or after you complete part of a service commitment. That timing can complicate state tax analysis.
Relevant factors may include:
A bonus paid after moving is not automatically taxable only in the new state. Similarly, moving before receiving the payment does not necessarily remove the former state’s claim if the compensation relates to services performed there.
Ask your tax professional to review the employment agreement and payment terms rather than relying solely on the date the money reaches your account.
Moving your home does not necessarily end your former state’s ability to tax income earned there.
You may still have nonresident filing requirements if you:
Telehealth can also raise state tax questions. The rules may depend on where you are physically located when performing the work, where your employer is located, and whether a state applies special sourcing rules to remote employees.
Track the dates and locations where you work, particularly during the year of your move.
Interest, dividends, and gains from ordinary investment accounts are often taxed by the state where you are a resident when the income is recognized. However, exceptions may apply depending on the asset, the transaction, and the states involved.
Therefore, the timing of an investment sale near a move can affect the state tax result.
A dentist moved from Florida to North Carolina and later sold investments to help fund the down payment on a new home.
Because the sale occurred after the dentist became a North Carolina resident, the gain was subject to North Carolina income tax. Selling the investments before establishing North Carolina residency might have produced a different state tax outcome, depending on the complete circumstances.
This does not mean investments should automatically be sold before moving. Taxes are only one factor in the decision. Market conditions, portfolio allocation, cash needs, investment risk, and federal tax consequences should also be evaluated.
Before making a large sale near a relocation date, coordinate the decision with your financial planner and tax professional.
The following states do not impose a broad individual income tax on wages:
Washington does not impose a broad individual income tax on wages, but it does tax certain long-term capital gains. It should not be treated as entirely tax-free when planning investment transactions.
When you move from a state without a broad individual income tax to a state that has one, your new state may generally tax income earned while you are a resident.
However, the result may be more complicated when income is tied to work performed before the move.
You may still need to file a part-year resident return in your former state. That state may also continue to tax income sourced there after your move, such as compensation for work you continue to perform within the state.
Moving to a state without a broad income tax does not eliminate other costs. Property taxes, sales taxes, insurance expenses, housing costs, and taxes on specific transactions can still affect your overall financial picture.
A couple may share a federal filing status yet have different state residency or income-sourcing situations.
This can happen when:
Depending on the states involved, spouses may need to file jointly for federal purposes while using a different filing status or allocation method for state purposes.
Do not assume that one spouse’s move automatically changes the other spouse’s residency. A tax professional should evaluate both spouses’ facts and each state’s rules.
For most taxpayers, personal moving expenses are not deductible on the federal income tax return.
Federal exceptions may apply to certain:
Individual states may treat moving expenses differently, so ask your tax professional whether your former or new state offers a deduction or other adjustment.
For most civilian employees, employer-paid or reimbursed moving expenses are generally treated as taxable compensation for federal tax purposes.
This may include:
Some employers provide a tax gross-up intended to offset part of the additional tax cost. Others do not.
Before accepting a relocation package, review:
The value shown in the relocation package may be different from the amount you retain after taxes.
A tax professional can help identify potential filing requirements, evaluate residency rules, and review the timing of compensation or major transactions.
Pay particular attention to the following:
Make sure your employer knows when your work location or residence changes. Review your first pay statements after the move to confirm that the correct state taxes are being withheld.
Incorrect withholding does not necessarily eliminate your underlying tax obligation.
Keep a calendar that lists the states where you physically perform services. This is particularly important if you work shifts, provide telehealth services, or continue working in your former state.
Save housing records, moving invoices, travel information, address changes, and other documentation that shows when your residency changed.
Before selling investments to fund a home purchase or other major expense, consider whether the transaction will occur before or after your residency status changes.
The investment and financial planning consequences should be weighed against the potential state tax impact.
A bonus, investment sale, relocation benefit, or a change in withholding could affect whether estimated payments are required in one or more states.
An interstate move may also affect:
Your tax return is only one part of the transition.
A move can affect more than the state tax returns you file. Your compensation, investments, cash flow, insurance coverage, and other financial decisions may also need to be reviewed.
Spaugh Dameron Tenny helps physicians and dentists evaluate these decisions as part of a coordinated financial plan. We also work alongside clients’ tax and legal professionals when specialized guidance is needed.
You may need to file a part-year resident return in both your former and new states if both states impose an income tax and you meet their filing requirements. You may also need a nonresident return for income earned in another state.
The answer depends on the state. Your moving date, permanent home, time spent in the state, family location, licenses, registrations, and other connections may all be considered. There is no single nationwide residency test.
Not by itself. Some states use a day-count test as part of their statutory-residency rules, but domicile and other factors may also matter. The exact threshold and requirements vary by state.
In some cases, both your resident state and the state where the income was earned may tax the same income. The resident state may offer a credit for qualifying tax paid to the other state, though state-specific limits and calculations apply.
Gains from ordinary investment accounts are often taxed by the state where you are a resident at the time of the sale. Exceptions may apply based on the type of asset, the source of the income, and the states involved.
It depends on the payment terms, when the bonus was earned and paid, where the related services were or will be performed, and the sourcing rules of the states involved.
For most civilian taxpayers, personal moving expenses are not deductible for federal income tax purposes. Certain military and intelligence-community moves may qualify for exceptions, and state rules may differ.
For most civilian employees, employer-paid moving expenses and relocation allowances are generally included in taxable federal wages. Review whether your employer provides a tax gross-up and whether repayment may be required if you leave early.
Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting advisors as appropriate.
Charles Whaley is not affiliated with MML Investors Services, LLC.
CRN202906-11537153
Charles is a Certified Healthcare Business Consultant and serves as the Director of Tax Services for The HMC Family of Companies, which includes Healthcare Management Consultants, The Dental CFO, The HMC Tax Group, and Xccelerated Team Performance. His firm offers a comprehensive menu of services that touch every facet of practice operations from strategic practice consulting to executive-level leadership coaching and tax planning and tax preparation. In addition, he is a Certified Public Accountant with over 15 years of “Big 4” public accounting and industry experience in providing quality accounting and tax services to a diverse range of clients.
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