Are Taxes Two-Timing You? How to Avoid Dual Taxation

Remote work and increased mobility have made living in one state while working in another more common than ever. While this flexibility has many perks, it can also trigger unexpected tax consequences.

Yes, you can get taxed twice.

If you work in a state other than your primary residence or have recently moved for employment, you may face dual-state taxation. This occurs when both your domicile state and the state where you work claim you as a resident for tax purposes. Understanding domiciliary and statutory residency is critical to avoid double taxation.

Two Key Residency Types: Domiciliary and Statutory

Your tax obligations depend on whether you are considered a resident or nonresident in a state.

Residents: Usually taxed on worldwide income.
Nonresidents: Usually taxed only on state-source income.

Domiciliary Residence

A state may consider you a resident if it’s your domicile—your principal home and the state you intend to return to. Evidence of domicile may include:

Primary residence
Driver’s license and vehicle registration
Voter registration
Where government mail is received
Family and economic ties
Time spent in the state

Tip: Domicile can only change with clear evidence of intent.

Proof Positive: Document Everything

To establish a new domicile:

Obtain a new driver’s license
Register vehicles in the new state
Buy or rent a permanent home
Move your belongings
Register to vote
Engage local professionals (doctors, accountants, etc.)

Returning to your original state? Moving back can undermine the claim that your domicile ever changed, especially if the prior relocation was short-term.

Statutory Residence

Statutory residency is generally easier to establish. In many states, you are a statutory resident if you:

Maintain a dwelling in the state
Spend more than 183 days (or close, depending on the state) in that state

Note: Seasonal or partial-use properties often do not qualify as a dwelling. Keeping precise records of days spent in each state is essential.

How Dual Residency Happens

Example:

Jane lives in State A (domicile) with her family, driver’s license, and bank accounts there. She works in State B, renting an apartment.

Time spent: 180 days in State A, 185 days in State B (State B’s statutory threshold = 185 days)
Outcome: Jane is domiciled in State A and a statutory resident of State B

This creates dual residency, exposing her to taxation in both states.

Dual Taxation and Credits

Both states may tax your total income. Some states provide tax credits for taxes paid to other states, but rules vary widely:

The domicile state usually offers credit for taxes paid to other states.
Statutory resident states may or may not provide credits.
Certain income, like dividends, capital gains, and intangibles, may not qualify for credits.

Bottom line: Even with credits, partial dual taxation is possible.

How to Minimize Dual-State Tax Burden

Plan Ahead: Before relocating, track potential statutory residency and domicile implications.
Document Everything: Keep evidence of days spent, residence, and intent.
Consult a Tax Expert: Rules differ by state, and 2025 regulations may have updated thresholds and interpretations.

Avoid being “taxed twice” by knowing your residency status, documenting moves, and seeking professional advice. Dual residency is complex, but proactive planning can save you thousands.