How to leave New York residency [Guide + FAQ]

New York is an iconic city but the tax burden is heavy.

Living and tax obligations are costly. For frequent travelers, digital nomads, and those looking to leave the city, the tax system can be notoriously hard to break. Breaking the tax residency bond isn't just about moving away; it's about navigating the domicile and statutory residency tests.

This guide helps you master the nuances of tax residency and your journey toward savings.

Choosing your destination: a home base for global living

In the life of a digital nomad, home is everywhere yet nowhere. Establishing a state domicile is nonetheless a requirement for a US citizen. That being the case, many nomads are choosing to plant their flag in places like South Dakota or Florida, states without an income tax, while your heart and feet wander across continents.

With remote work and nomadism on the rise, choosing your domicile strategically can free you from state income tax while you travel the world.

By planning your trips carefully and staying under the 183-day annual limit, you can explore different countries and not be tethered to any state's tax system.

Strategic disentanglement: the pre-departure checklist

Transitioning from New York to nomadic life is a surgical operation. It's a blend of timing, choosing your new home base, and meticulous planning.

✔️ Timing your departure 

Exit New York at year’s end to curtail your tax presence. This move should coincide with the tax calendar to reduce obligations in your departure year. If you stay in New York until April, you must pay the state income tax until April. That said, it’s a red flag to change your domicile on January 1 – not many people are moving on New Year. 

✔️ Selecting a new domicile

If your nomadic path leads abroad, you may prefer states close to your new country for convenience. It’s always nice to blend fiscal practicality with lifestyle convenience. For example, if you are spending most of your time in Europe, there is a big difference between Florida and Washington (around 6 hours), even though neither has a state income tax.

✔️ Assessing ties to New York

Catalog what anchors you to New York—property, businesses, community ties. These are the threads you'll need to sever or untangle.

✔️ Planning your move 

Transition domiciles very thoughtfully. Draft a timeline for a gradual shift from New York to your new state.

✔️ Consulting with experts

Expert advice is crucial. Tax professionals and lawyers can help with residency criteria and New York’s exit tax intricacies. For example, the deciding factor in one famous residency case was the date at which the dog’s vet was changed from a NYC vet to a Florida vet. 

Leaving New York state residency (12 steps)

Changing your New York State residency involves several calculated steps to ensure a clear-cut transition.

1) Establish new residency

Secure a residential address in the new state. If you buy a home, you may want to look into available credits, like Florida’s homestead exemption. You may want to consider filing a Declaration of Domicile with the state, as suggested in Savvy Nomad’s domicile guides.

• Florida residency guide
• South Dakota residency guide
• Texas residency guide
• Nevada residency guide

2) Relocate belongings 

Move any valuable possessions out of New York and document the process. Receipts and records are key proof of your relocation efforts. Always remember that the burden of proof is on you to show when you leave New York as your residence.

3) Spend time in a new state 

The more time you can spend in your new state, the better. While many nomads simply drop in for a day or two to get their license, the more you can truly make your new domicile home, the easier it will be to show that New York isn’t your home.

4) Transfer IDs and registrations 

Swiftly update your driver's license and vehicle registration.

5) Register to vote 

Voter registration in your new state.

6) Integrate into the community 

Engage in local activities and memberships to solidify your residency status.

7) Update documents

Ensure all identification, medical, insurance and financial documents reflect your new address.

8) Notify your Employer

It’s important to notify your employer of your residency change. This can also help convert some of your income away from being “New York-sourced.” 

9) Notify IRS 

Inform the IRS of your address change using Form 8822. Extend this notification to all personal and professional entities.

10) Keep records

Document all relocation actions diligently.

11) Acknowledge key factors 

New York considers multiple factors for domicile status, including home, time spent, business ties, location of valuables, and family location. Make sure you feel confident on as many of these as you can.

12) Anticipate an audit

Be audit-ready with comprehensive proof of your move’s permanence.

Ticking these boxes methodically sets you on a clear path away from New York residency, towards a new home that matches your nomadic ambitions.

Navigating New York tax implications

As you leave New York, the tax implications are part of your journey. Understanding New York's 'Statutory Resident' rules and the management of New York-source income is crucial for a hassle-free financial shift.

The statutory resident rule

This is pivotal for those with a home in New York who spend over 183 days in the state. Even without a New York domicile, you may face full resident taxes.

Part-year residency and tax filing

The first year you leave, you’ll likely file as a part-year resident, paying taxes on all income earned while residing in New York and only on New York-source income thereafter. A tax professional can help you determine which, if any, of your income streams are “New York-sourced.” 

Handling New York-source income

New York taxes income from business activities or property within the state, even after you move. This includes income from entities like S corporations located in New York.

The “Teddy Bear” test

Another unique way that New York determines domicile is through sentimental belongings. Where you keep items of personal importance can influence the state’s perception of your true home base.

Strategic considerations

Post-move, it's strategic to limit time in New York, especially if retaining property. If the property is kept, renting it out can evidence a shift from personal use to an investment, indicating a genuine residency change.

Post-Move challenges: navigating the aftershocks

Transitioning to a new state residency is not without its potential reverberations. Being prepared for these is key to navigating the post-move landscape smoothly.

Prepping for the possibility of a residency audit

In the event of an audit, be ready with:

• Precise logs of your locations throughout the year, backed by supporting documents.
• Document your move, including contracts with movers (if available) and evidence of establishing or ending utilities.
• Proof of the relocation of personal and valuable items.
• Verify new ties in your destination state, like property ownership and local involvement.

To bolster your case:

• Maintain thorough records of your presence in and out of New York.
• Assemble proof of your new domicile status through updated voter and vehicle registrations, and housing deeds or leases.
• Update financial records to reflect your new home state, including the transition of bank accounts.
• Transition away from New York-based services, favoring professionals (including doctors and dentists) in your new state, and keep records of these changes.

A proactive and detailed approach to documentation and establishing your new state ties is your best defense against the complexities of a residency audit and the challenges that follow a move.

FAQ

What triggers the NY residency audit?

New York residency audits can be triggered by high income, a change in domicile or statutory residency, or many people moving out of the state. Audits often start with a questionnaire requesting proof of address​.

Does New York have an exit tax?

No, New York has no official exit tax for residents leaving the state. However, residents who move out of New York during the tax year are generally required to file a part-year resident tax return and pay income taxes on any income earned while residing in New York.

Does New York have a 183-day rule?

Yes, New York does have a 183-day rule for determining residency for tax purposes. According to the rule, individuals may be considered residents if they spend 183 days or more in the state during a three-year period, including the current year and the two previous years.

What is the residency test in NYC?

The New York City residency test involves two main criteria: the Domicile Test and the Statutory Residency Test. Under the Domicile Test, an individual is considered a New York City resident for tax purposes if they are domiciled in New York City or maintain a permanent place of abode there and spend more than 183 days there. 

The Statutory Residency Test, on the other hand, deems an individual a resident if they maintain a permanent place of abode in the city for substantially all of the year and spend more than 183 days in New York City.

Why are New Yorkers leaving?

The reasons why New Yorkers might choose to leave the city encompass a range of economic, lifestyle, and personal factors. Here's a consolidated list:

1. High Taxation: The high tax rates in New York City and New York State, including income, property, and sales taxes, can be a significant factor, especially for those in higher income brackets and businesses looking for a more favorable tax climate.
2. Cost of Living: New York City's high cost of living, including expenses for housing, food, utilities, and transportation, can be prohibitive for many.
3. Housing Market: The competitive and expensive housing market makes it difficult for individuals and families to find affordable living spaces, pushing them to look elsewhere.
4. Quality of Life Issues: Some residents find the city's dense population, noise, pollution, and fast-paced lifestyle challenging and prefer a quieter or different living environment.
5. Employment Opportunities: Despite the city's vast job market, the competitive nature of job opportunities and the possibility of better prospects or a lower cost of living elsewhere can motivate a move.
6. Remote Work: The rise of remote work options has given people the flexibility to live outside of New York City, allowing for a search for places with more space and a lower cost of living while maintaining their current jobs.
7. Safety Concerns: Perceptions of safety and actual crime rates in certain areas can influence decisions to move, especially among families looking for a safer environment.
8. Seeking a Different Lifestyle: Individuals may leave New York City in search of a different pace of life, including quieter suburban areas, access to nature, or regions with a different climate.
9. Retirement: Retirees often look for more affordable, peaceful places to live where their retirement savings can go further, prompting moves out of the city.
10. Family Reasons: Personal reasons, such as being closer to family or starting a family in a place perceived as more conducive to raising children, can also be a deciding factor.

Space and Comfort: The desire for more living space, both indoors and outdoors, can lead people to leave the crowded city for suburban or rural areas.

Do I have to file an NY state tax return as a nonresident?

Nonresidents must file a New York state tax return if they receive income from New York sources during the tax year.

This is necessary if you have New York-sourced income and your New York adjusted gross income exceeds your New York standard deduction, or if you wish to claim a refund for New York taxes withheld​. Additionally, claiming nonresident status requires caution if maintaining a second home in New York​.

Can you leave residency and come back?

Leaving New York residency and returning involves documenting your break from residency via a tax return, specifically Form IT-203, as a part-year resident.

The state considers several factors to determine residency, including domicile status, maintaining a permanent place of abode, and presence in the state for more than 183 days.

To reestablish residency, you would need to demonstrate a permanent move back to New York, considering factors like the location of your home, family, business, time spent, and where you keep important possessions​.

Do you have to pay NY taxes if you live out of state?

If you live out of state but have income from New York sources, such as services performed in New York, rent from real estate, or the sale or transfer of real estate located in New York, you are still required to pay New York state taxes on that income.

This necessitates filing a New York state tax return even if you are a nonresident​. Nonresidents who work for New York City may need to file a special form (NYC-1127) if they are employees of the city but live outside the five boroughs.

Moreover, employers outside of New York who withhold New York state taxes for the convenience of the employee are subject to New York's withholding tax requirements​.

What is the difference between a New York resident and a part-time resident?

A New York State resident for tax purposes is someone whose domicile is in New York or someone who maintains a permanent place of abode in New York and spends 184 days or more there during the tax year.

A part-year resident, however, is someone who meets the criteria for being a resident or nonresident only for a portion of the year. Essentially, the difference lies in the duration and permanence of their stay and where they consider their permanent home to be.

How does the IRS verify primary residence?

The IRS verifies primary residence status by looking for evidence that shows where you live most of the year.

This can be a house, co-op, apartment, houseboat, mobile home, or trailer with a fixed address. The primary residence is where you spend the majority of your time, receive mail, and have government IDs registered. Factors include where you work, where you vote, bank, pay utilities, and where your children attend school.

Additionally, your primary residence is where you're likely to get tax benefits such as mortgage interest deductions and capital gains tax exclusions on the sale of the home​.