How to leave Maryland residency?
Maryland residents may choose to leave the state due to its relatively high tax burden and complex tax regulations. Maryland’s state income tax rates are among the highest in the U.S., with rates reaching up to 5.75%, plus an additional local tax of up to 3.2%. This can place a significant financial strain on residents, particularly for those with higher incomes.
Furthermore, Maryland taxes its residents on worldwide income, meaning any earnings from abroad are still subject to state taxation.
Maryland's high tax rates and complex tax laws often require professional assistance. Rising living costs near Washington, D.C., high crime rates in areas like Baltimore, and long commutes due to traffic congestion drive residents to seek more affordable and safer environments.
Moving from Maryland to a tax-friendly state can bring financial benefits for digital nomads, retirees, and those looking to optimize their tax obligations. Many individuals are choosing to relocate to states with no income tax, such as Florida or Texas, or those with simpler tax codes.
Steps to leaving Maryland residency
Step 1: Establish a new domicile
1) Establish new residency
- Secure a residential address: Rent or purchase property in your new state.
- File a Declaration of Domicile: In states like Florida, you can file a Declaration of Domicile, which legally states your intent to make the new state your permanent home. This additional legal documentation can further solidify your residency status.
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2) Relocate your belongings
Physically move your personal belongings to your new state. This includes household items, vehicles, and other personal possessions, which will demonstrate your intent to leave Maryland permanently.
3) Spend time in your new state
Ensure you spend the majority of your time in your new state to establish a clear presence. Spending fewer than 183 days in Maryland annually helps avoid residency status in Maryland.
4) Transfer IDs and vehicle registrations
Transfer your driver’s license and vehicle registration to your new state. This is a strong signal of your intent to leave Maryland.
5) Register to vote
Register to vote in your new state. Voting records are a key indicator of residency, so this step is crucial in establishing your new domicile.
6) Update financial accounts
Notify banks, credit card companies, and other financial institutions of your new address. This ensures that all your financial activities reflect your new state residency.
7) Notify your employer
Update your employer with your new address, and ensure that payroll and tax withholdings are aligned with your new state. This helps avoid confusion with tax filings.
Step 2: Sever ties with Maryland
To officially leave Maryland residency, it’s essential to sever all significant ties with the state. This will demonstrate to Maryland’s tax authorities that you no longer maintain residency there.
1) Close Maryland financial ties
- Close Maryland bank accounts: Closing local bank accounts and transferring your funds to your new state helps demonstrate that your financial activity is no longer tied to Maryland.
- Cancel Maryland voter registration: Update your voter registration to your new state. Voting records are a strong indicator of residency, and keeping a Maryland registration could complicate your transition.
- Update personal records: Ensure that all personal records (with the IRS, Social Security, etc.) reflect your new address and state of residency. This is a critical step to show that you no longer reside in Maryland.
2) Sell or lease property
- Sell or lease your Maryland property: If you own property in Maryland, selling or leasing it is an important step in demonstrating that you no longer intend to reside in the state. If leasing, make sure it’s a long-term agreement to avoid any appearances of continued residency.
- Move personal belongings: Relocate your personal belongings to your new state to further support your permanent move.
3) Cancel local subscriptions/services
Cancel any Maryland-based memberships, subscriptions, or services, such as gym memberships or utilities. This removes ties to the state and further signals your intent to leave permanently.
4) Transfer healthcare and insurance
Establish care with new providers in your new state and update your health insurance policies to reflect this change. This is another step in proving your new domicile.
Step 3: Time spent outside Maryland
One of the most critical factors in leaving Maryland residency is the amount of time you spend outside the state. Maryland’s tax authorities also use the 183-day rule to determine if you should still be classified as a resident for tax purposes.
183-Day Rule
- Stay under 183 days: To avoid being classified as a Maryland resident for tax purposes, you must spend fewer than 183 days in Maryland during the year. Spending more than this threshold could make you subject to Maryland’s tax laws.
- Keep detailed travel records: Retain travel documents such as flight tickets, hotel receipts, and any other relevant records to prove your time spent outside Maryland. These documents will be critical if you are ever audited by Maryland tax authorities to determine your residency status.
Step 4: Maryland-sourced income
Even after you leave Maryland residency, you may still have tax obligations if you continue to earn income from Maryland sources. It’s important to understand how Maryland-sourced income will be taxed.
1) Ongoing tax responsibilities
If you continue to earn income from Maryland (e.g., rental or business income), you will need to file non-resident tax returns. This ensures that while you report income generated in Maryland, you avoid residency-based taxation on your global income.
2) Rental or business income
Taxation of Maryland-sourced income: Income from Maryland-based rental properties or businesses remains subject to state taxes. Consult a tax professional to fully understand the tax obligations and ensure compliance as a non-resident.
By following these steps, you can ensure that you effectively sever ties with Maryland, establish residency in your new state, and manage any Maryland-sourced income obligations. This will help ensure that Maryland no longer considers you a resident for tax purposes, allowing you to benefit from the tax advantages of your new state of residence.
