Guide to Leaving New Jersey Residency
Many people are thinking about leaving New Jersey residency, and for good reasons. There are several benefits, such as saving money on taxes and enjoying a better lifestyle. By moving to a state with no income tax, you can keep more of your hard-earned money.
In recent years, there has been a growing trend of individuals, families, and even expats (people living outside their home country) relocating to other states in search of more opportunities or to states like Florida or South Dakota to save on taxes.
These states offer not only financial benefits but also warm weather, beautiful scenery, and a relaxed way of life.
This guide will help you understand the steps you need to take to leave New Jersey residency and establish a new home in a tax-friendly state.
New Jersey residency rules
Definition of New Jersey residency
New Jersey residency is determined by domicile and physical presence.
You are considered a resident of New Jersey if you are domiciled in the state or if you spend more than 183 days in New Jersey during the year.
What is domicile?
Domicile is the place you consider your permanent home.
Your domicile is the main place you live and intend to return to after any period away, such as a vacation or business trip.
Factors that determine your domicile include:
- Intent: Where you plan to return and stay permanently.
- Voting Registration: Where you are registered to vote.
- Driver’s License and Vehicle Registration: Where your driver’s license is issued and your vehicle is registered.
- Family Ties: Where your family lives.
- Bank Accounts: The location of your bank accounts.
Permanent home
A permanent home is your principal residence, maintained on a permanent basis. This is the home you live in most of the time and plan to keep long-term.
Temporary homes, such as those used for short-term job assignments, do not count as permanent homes.
Part-Year residents
If you moved into or out of New Jersey during the year, you are considered a part-year resident.
As a part-year resident, you may need to file a resident tax return to report the income received during the period you lived in New Jersey.
Part-Year resident and nonresident
If you change your domicile and meet the definition of a resident or nonresident for only part of the year, you are a resident for part of the year (part-year resident) and a nonresident for the remainder of that year (part-year nonresident).
If you received income from New Jersey sources during both your residency and nonresidency periods, you must file both a NJ-1040 and a NJ-1040NR.
Examples
- Example 1: A single taxpayer was a resident of California for 10 months and a resident of New Jersey for two months. They are subject to tax on the income received during the two months they were a New Jersey resident if their total yearly income exceeds the filing threshold.
- Example 2: A single taxpayer was a New Jersey resident from January through September, then moved to Florida. They must file a part-year resident return to claim any refund of New Jersey Income Tax withheld during their residency period.
Steps to terminating New Jersey residency
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.
2) Relocate belongings
Physically relocate your personal belongings to your new state of residency. This helps demonstrate your intent to establish a permanent home in the new state.
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 Jersey isn’t your home.
4) Transfer IDs and vehicle registrations
Transfer your driver’s license and vehicle registration to your new state. This is a clear indicator of your intent to establish permanent residency in the new state.
5) Register to vote in a new state
Register to vote in your new state of residency. This demonstrates your commitment to being a part of the new community and state.
6) Update financial accounts
Update your address with all financial institutions, including banks, credit card companies, and investment accounts. This ensures all your financial records reflect your new residency status.
7) Notify your employer
Notify your employer of your change in address and residency. Ensure your payroll and tax withholdings are updated to reflect your new state of residence.
8) Notify IRS
Notify the IRS of your change in address by filing IRS Form 8822. This ensures that your federal tax records are updated and that you receive any important correspondence at your new address.
9) Cut ties with New Jersey
Take steps to cut ties with New Jersey. This includes:
- Selling or renting out your New Jersey property.
- Closing bank accounts in New Jersey.
- Transferring memberships and subscriptions to your new state.
10) Keep records
Keep detailed records of your move and actions taken to establish residency in your new state. This includes leases, utility bills, voter registration, and any other documentation that supports your residency claim.
11) Be ready for an audit
Be prepared to provide evidence of your new residency if questioned by New Jersey tax authorities. Maintain a file with all relevant documents to demonstrate your intent and actions in establishing residency in the new state.
New Jersey exit tax
The “Exit Tax” refers to the payment required when selling a home in New Jersey while moving out of state. It is a prepayment of the state income tax on the sale of real property by nonresidents.
This tax ensures that New Jersey collects taxes owed on the capital gain from the sale of the property.
How it works
Withholding requirement:
- When selling your home, you are required to withhold 2% of the sale price or the net gain, whichever is higher.
- This amount is paid to the New Jersey Division of Taxation at closing.
Purpose:
- The withholding acts as a prepayment of the income tax that may be due on the capital gain from the sale.
- It prevents individuals from avoiding state taxes by moving out of state before paying taxes on the gain.
Filing for a refund
Eligibility for Refund:
- If the amount withheld exceeds your actual tax liability, you can file for a refund.
- To do this, you need to file a New Jersey nonresident tax return.
Required Forms:
You will need to complete and submit specific forms to claim your refund, including:
- GIT/REP-1: Nonresident Seller’s Tax Declaration.
- GIT/REP-2: Nonresident Seller’s Tax Prepayment Receipt.
- NJ-1040NR: New Jersey Nonresident Income Tax Return.