Tax Implications of Moving to Another State: What Physicians and Dentists Should Know

Filing taxes is already complex — adding a state-to-state move can make things even more confusing. For physicians and dentists relocating for a new job, completing training, or making a lifestyle change, it's essential to understand how your income, investments, and residency status affect your tax obligations.

We spoke with Charles Whaley, CPA, CHBC, and Director of Tax Services for The HMC Family of Companies, to answer common questions our clients ask when moving states. Thank you to Charles for sharing his time and expertise with us to help address this frequent concern.

Quick Answers for Doctors Moving States

• You pay income tax in any state where you earn income.
• Unearned income (like capital gains) is taxed in your state of residence.
• Most movers must file part-year resident returns in both states.
• Timing matters: Selling investments before or after moving can lead to tax consequences.
• Moving expenses aren’t deductible under federal law (with few exceptions).

Where Do You Pay State Taxes When You Move?

"You owe taxes in any state where you earn income," Charles explains. "But unearned income is taxed in your state of residence." In practice, this means:

• Earned income (wages, salaries, etc.) is usually taxed by the state where you work and live.
• Unearned income (capital gains, dividends) is taxed based on your official state of residence.

Real-Life Example: Capital Gains Mistiming

Charles shared a case about a newly relocated dentist who moved from Florida (a no-income-tax state) to North Carolina. After this move, he sold investments to help fund the down payment on a new home.

Since the sale took place while he was a North Carolina resident, he owed 5.25% in NC state taxes on those gains — an expense that could have been avoided by selling before the move.

Do You Pay Taxes Where You Live or Where You Work?

Generally, your home state taxes your total income. If you work in another state, you may also need to file a nonresident return there. Some states have reciprocity agreements that prevent double taxation.

States With Reciprocity Agreements

• Arizona
• Illinois
• Indiana
• Iowa
• Kentucky
• Maryland
• Michigan
• Minnesota
• Montana
• New Jersey
• North Dakota
• Ohio
• Pennsylvania
• Virginia
• West Virginia
• Wisconsin
• The District of Columbia (DC)

If you don't live in a reciprocity state, federal rules ensure you won't be taxed twice. You'll receive a credit for taxes paid to another state on your home state's return.

How Long Do You Have to Live in a State to File Taxes?

If you move permanently to another state during the tax year, you will likely need to file two part-year resident tax returns — one for each state. Each state has its own rules for determining residency, so check with a tax professional.

States With No Personal Income Tax

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Filing Taxes After a Mid-Year Move

If you lived in two states in one year, you’ll likely:

• File a part-year return in each state (if both levy income tax).
• Divide your income based on when and where it was earned.

What Happens If You Move From or To a No-Income-Tax State?

From a No-Tax State to a Taxing State

You’ll only owe state income tax on income earned after you establish residency in the new state.

From a Taxing State to a No-Tax State

You’ll file a part-year return for your previous state. Income earned after your move won’t be taxed at the state level. Timing matters. If you plan to sell investments or receive large bonuses, the state in which you reside at that time will determine whether you owe state tax.

What If My Spouse Works in Another State?

Filing jointly is usually the best approach. However, if one spouse establishes residency elsewhere (e.g., by leasing a home in another state), you may need to:

• File jointly at the federal level.
• File separately at the state level, depending on state law.

This can get complicated quickly. Consult a tax advisor to evaluate your best strategy.

Can I Deduct My Moving Expenses?

For most taxpayers, the answer is no. The Tax Cuts and Jobs Act of 2017 eliminated this federal deduction, except for active-duty military personnel.

As of the latest updates, a few states, including California, New York, New Jersey, Pennsylvania, and Massachusetts, still permit limited moving expense deductions, although rules may vary.

What Should I Do Before I Move?

1. Consult a tax professional: Timing your move or asset sales can significantly impact your tax bill.
2. Maintain accurate records: Track when you moved, where income was earned, and when assets were sold.
3. Notify your financial advisor: They can help structure your financial plan accordingly.

Planning a Move? Don't Do It Without Expert Guidance

If you're a physician or dentist thinking about relocating, timing and strategy are everything. A qualified tax advisor can:

• Help you avoid costly tax surprises
• Structure your move to minimize your state tax burden
• Advise on the best timing for major financial decisions

Before making your move, also connect with your financial planner and CPA. Reach out to the Spaugh Dameron Tenny team for guidance tailored to your unique situation — so you can move with clarity and confidence.

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.

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