State taxes: moving states, remote work and the SALT cap

Federal tax gets the attention, but state tax is where moves, remote work and equity pay create surprise bills.

Residency at state level

Most states tax residents on all income and non-residents only on income from within the state. A state treats you as a resident if you are domiciled there (your permanent home) or a statutory resident (a home there plus more than about 183 days in the state; New York and a few others use their own variants).

Moving in the middle of a year means a part-year resident return in each state, with income allocated by date. A move that is not documented, such as keeping a driving licence, voter registration, a bank address or a lease in the old state, invites a residency audit by the state you left. California and New York audits are the best known.

Remote work

A remote employee is generally taxed by the state where they physically work. Some states apply a "convenience of the employer" rule, taxing remote workers on days worked at home if the employer is in that state. Check the W-2 state boxes. If you worked from India for a few weeks, those wages may also be taxed in India (India filing article).

No-income-tax states

Texas, Florida, Washington, Nevada, Tennessee, Wyoming, South Dakota, Alaska and New Hampshire do not tax wages. Moving there is not an escape if your employer, equity, or rental income has a source in another state.

Where states differ from the federal return

• HSA. California does not recognise the HSA deduction or its tax-free growth (FTB guidance), so you pay state tax on the contributions and on the interest and dividends in the account. New Jersey also does not generally allow the deduction, though bills to change this have been proposed, so check the current rules.
• Roth and retirement. Most states follow the federal rules, but some tax distributions differently.
• Foreign income. States largely follow the federal inclusion of Indian income, but they do not all give a credit for Indian tax. Several do not.

The SALT cap

The federal itemised deduction for state and local taxes was capped at $10,000 for years. For tax years 2025 to 2029 the cap is $40,000, rising 1% a year, and phased down for higher incomes. Many households that took the standard deduction before should recheck: the standard deduction in 2025 is $15,750 for a single filer and $31,500 for a joint return. State income tax, property tax and mortgage interest together may now exceed it.

What to keep

1. Dates of move, in and out, with leases or closing statements.
2. The pay stubs showing state withholding by period.
3. A record of which state each stock vest or option exercise belongs to.