How to leave Kentucky residency?

Leaving Kentucky residency can offer significant financial and lifestyle benefits, especially if you’re relocating for retirement, job opportunities, or lower taxes. Kentucky has a flat income tax rate of 5%, and as a resident, you are taxed on your worldwide income. For many, moving to a state with no or lower state income tax, such as Florida, Texas, or Nevada, can provide substantial savings.

Additionally, many people are choosing to leave Kentucky for warmer climates, better job prospects, or to be closer to family. Whether you are planning a move to reduce your tax burden or seeking new opportunities, understanding the steps to officially leave Kentucky residency is essential to avoid continued tax obligations.

By following these steps carefully, you can ensure a smooth transition to your new residency and minimize your tax liabilities.

Steps to leaving Kentucky residency

Step 1: Establish a new domicile

The first step in leaving Kentucky residency is to establish a new domicile in another state. This involves physically relocating and proving that your new state is your permanent home.

1) Establish new residency

• Secure a residential address: Start by finding a place to live in your new state. Whether you’re renting or buying, this serves as the foundation for your residency claim. For example, in Florida, homeowners may qualify for tax savings through the homestead exemption.

• File a Declaration of Domicile: In states like Florida, you can file a legal document stating that your new state is now your permanent home, making it official.

Residency guides:

• Florida Residency Guide
• South Dakota Residency Guide
• Texas Residency Guide
• Nevada Residency Guide

2) Relocate your belongings

Moving personal belongings to your new state is an important step to demonstrate your intention to live there permanently. This can include moving your household items, vehicles, and other significant possessions.

3) Spend time in your new state

The more time you spend in your new state, the stronger your claim to residency. Try to minimize your time in Kentucky during this transition, as spending too much time in your former state could raise questions about your new residency.

4) Transfer IDs and vehicle registrations

Update your driver’s license and vehicle registration to your new state. This is a clear and simple way to show that your new state is now your legal home.

5) Register to vote

Register to vote in your new state as soon as possible. Voting is an important way to show your commitment to being part of your new community.

6) Update financial accounts

Change your address with banks, credit card companies, and other financial institutions. This ensures all your accounts reflect your new state of residency.

7) Notify your employer

Let your employer know about your move and make sure your payroll and tax withholdings are updated to your new state. This helps ensure that you aren’t taxed by Kentucky anymore.

By following these steps, you’ll create a strong foundation for proving your new residency and reducing the risk of being taxed by Kentucky after your move.

Step 2: Sever ties with Kentucky

Once you’ve established a new domicile, the next important step is to cut all significant ties with Kentucky. This ensures that Kentucky tax authorities won’t continue to treat you as a resident for tax purposes. 

Here’s how to do it:

1) Close Kentucky financial ties

• Close local bank accounts: If you have any bank accounts in Kentucky, it’s a good idea to close them and move your funds to banks in your new state. This shows that your financial activities are no longer based in Kentucky.
• Cancel Kentucky voter registration: Make sure to cancel your voter registration in Kentucky and register to vote in your new state. Voting records are a key factor in determining residency.
• Update personal records: Update your address with the IRS, Social Security, and any other relevant entities. Keeping all personal and financial records in your new state helps solidify your move.

2) Sell or lease property

If you own property in Kentucky, selling it is one of the strongest indicators that you no longer intend to reside there. Alternatively, leasing the property on a long-term basis can also demonstrate that you do not maintain significant ties to the state.

3) Cancel local subscriptions/services

Cancel any memberships, subscriptions, or services connected to Kentucky, such as gym memberships, utilities, or local clubs. Maintaining these services may suggest you still have ties to the state.

4) Transfer healthcare and insurance

Find healthcare providers in your new state and ensure that your health insurance is updated to reflect your new residency. Transferring these essential services supports your claim of permanent residence in your new state.

Step 3: Time spent outside Kentucky

To successfully leave Kentucky residency, it’s important to limit the amount of time you spend in the state. Kentucky uses the 183-day rule to determine whether someone is considered a resident for tax purposes. 

Here’s how to manage your time to avoid being classified as a Kentucky resident:

183-day rule

• Stay under 183 days: Kentucky considers you a resident for tax purposes if you spend 183 days or more in the state in a given year. To avoid this, you need to ensure that you spend fewer than 183 days in Kentucky annually.
• Maintain travel records: It’s important to keep records of your time spent outside Kentucky, such as flight tickets, hotel receipts, and other documentation. This will help you prove, if necessary, that you were not physically present in Kentucky for 183 days or more.

Step 4: Kentucky-sourced income

Even after leaving Kentucky residency, you may still have tax obligations if you have income that originates from within the state. 

Here’s how to handle Kentucky-sourced income after your move:

1) Ongoing tax responsibilities

If you continue to earn income from Kentucky (such as rental income, business profits, or wages), you will need to file non-resident tax returns. This ensures that only the income sourced from Kentucky is taxed, while income earned in your new state remains separate.

2) Rental or business income

Any rental properties or businesses you maintain in Kentucky will still be subject to the state’s tax laws. Make sure you understand the ongoing tax implications and keep clear records to ensure compliance with Kentucky tax rules. Consulting with a tax advisor is highly recommended to navigate these complexities.