How to leave Michigan residency?

Leaving Michigan residency can be a great way to save on taxes, especially if you’re moving to a state with lower or no income taxes. Michigan taxes residents on their worldwide income, so if you’re planning a move for retirement, a new job, or just a change of scenery, it’s important to know how to officially cut ties with the state.

But leaving Michigan residency isn’t as simple as packing up and moving. You’ll need to take specific steps to ensure Michigan doesn’t consider you a resident for tax purposes anymore.

Whether you’re relocating for better weather, lower taxes, or a new chapter in life, following these steps will make your move smoother and help you avoid paying extra taxes.

Step 1: Establish a new domicile

The first step to leaving Michigan residency is establishing a permanent home, or domicile, in your new state. This isn’t just about physically moving, but also about taking clear steps to show that your new state is your primary residence. Here’s how to get started:

Here’s how to do it:

1) Establish new residency

• Secure a residential address: Find a place to live in your new state, whether it’s through renting or buying a home. Many states, like Florida, offer tax benefits such as the homestead exemption, which could help lower your property taxes. Setting up a permanent residence in your new state is essential to proving that you’ve left Michigan.

• File a Declaration of Domicile: In states like Florida, you can file a legal document called a Declaration of Domicile. This is a simple way to officially declare that you’ve established residency in your new state.

Residency guides:

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

2) Relocate your belongings

Moving personal items like your furniture, vehicles, and other household possessions to your new state shows that you are serious about making it your permanent home.

3) Spend time in your new state

Spend as much time as possible in your new state to make it clear that you’ve established permanent residency there. If you continue spending a lot of time in Michigan, it could make your residency status unclear for tax purposes.

4) Transfer IDs and vehicle registrations

Be sure to transfer your driver’s license and vehicle registration to your new state as soon as possible. This is a clear sign that your life is now centered in your new state, not in Michigan.

5) Register to vote

Registering to vote is a key indicator of residency. Make sure to cancel your voter registration in Michigan and register in your new state. This step helps solidify your claim to your new domicile.

6) Update financial accounts

Notify your bank, credit card companies, and other financial institutions of your new address. Keeping all your financial documents up to date with your new residency helps confirm your move.

7) Notify your employer

Make sure your employer updates your payroll and tax withholdings to reflect your new state. This ensures that Michigan no longer withholds state income taxes from your paycheck.

Step 2: Sever ties with Michigan

Once you’ve established a new domicile in another state, it’s important to cut your significant ties with Michigan. This ensures that Michigan will no longer consider you a resident for tax purposes. 

Here’s how to sever your connections with the state:

1) Close Michigan financial ties

• Close local bank accounts:  If you have Michigan-based bank accounts, consider closing them and transferring your funds to banks in your new state. This demonstrates that your financial life is now rooted in your new home.
• Cancel Michigan voter registration: Make sure you cancel your voter registration in Michigan and register to vote in your new state. Voting records are often used to determine 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 a home or other property in Michigan, selling it is one of the clearest signals that you no longer reside in the state. If you choose to lease your property instead, consider a long-term lease to demonstrate that you don’t maintain a residence in Michigan.

3) Cancel local subscriptions/services

Cancel any memberships, utilities, or subscriptions you have in Michigan, like gym memberships or utility bills. Maintaining these services could signal that you still have ties to the state.

4) Transfer healthcare and insurance

Move your healthcare services and providers to your new state. Transferring these essential services further strengthens your case that your daily life is now based elsewhere.

Step 3: Time spent outside Michigan

To successfully leave Michigan residency and avoid being taxed by the state, it’s crucial to manage the amount of time you spend in Michigan. 

Michigan, like many states, uses the 183-day rule to determine residency for tax purposes, so keeping your time in Michigan below this threshold is essential.

183-day rule

• What is the 183-day rule?: If you spend 183 days or more in Michigan in a calendar year, you may be considered a resident for tax purposes, even if you’ve moved to another state. This means you could be liable for state income taxes.
• Stay under 183 days: To avoid being classified as a resident, ensure you spend fewer than 183 days in Michigan each year. This rule applies regardless of where your primary residence is.
• How the rule works: Each day you spend in Michigan is counted as a full day for tax purposes. This includes weekends, holidays, or even partial days. It’s crucial to track all the days you spend in Michigan to ensure you stay below the limit.

Keep detailed travel records

• Why it’s important: If your residency status is ever questioned, having detailed records of your time spent in and out of Michigan will be essential for proving that you’ve stayed under the 183-day limit.
• What to track: Save flight tickets, hotel receipts, and any other travel documents that show when you entered and left Michigan. Having a detailed log of your movements will be helpful if your residency status is ever audited by Michigan’s Department of Revenue.

By keeping careful records and ensuring that you stay under the 183-day limit, you can avoid being classified as a Michigan resident and minimize your tax obligations in the state.

Step 4: Michigan-sourced income

Even after you’ve left Michigan and established residency in a new state, you may still have income that originates from Michigan. 

It’s important to manage this Michigan-sourced income correctly to ensure compliance with state tax laws.

1) Ongoing tax responsibilities

• File non-resident tax returns: If you continue to earn income from Michigan sources, such as rental properties or business profits, you will need to file a non-resident tax return in Michigan. This allows the state to tax only the income you earned in Michigan, not income earned in your new state of residence.
• Tax on Michigan-sourced income: Even though you are no longer a resident, Michigan still has the right to tax income generated within the state. This could include wages earned in Michigan, rental income, or profits from Michigan-based businesses.

2) Rental or business income

If you own rental property or a business in Michigan, any income generated from those sources will still be subject to Michigan state taxes. It’s important to consult with a tax professional to ensure compliance with Michigan tax laws, especially if you have complex income streams that tie back to the state.