Handling State Income Taxes in a Rotational Program

[letony4738]

Right now, I am part of a rotational program that has me rotate to new roles every 8 months all across the United States. I am originally from Oregon, but since then, have moved to Washington and Texas for two separate roles. Originally, when I moved to Washington, I changed my address to Washington where I was not paying income tax. However, when tax season came around, people were telling me that because I was only temporarily living and working in Washington, I was still supposed to file in Oregon as that is my permanent address. When I did my own research into it, I couldn’t see a way around it so I had changed my tax address to Oregon and was paying Oregon taxes. When I moved to Texas, I did the same and kept paying. With both of those states not having income taxes, it was more of a nuisance than an issue paying for Oregon taxes. However, now I am about to move to Pennsylvania where they do have their own income tax and now I am hearing I will be paying that because I worked and earned income there. I am confused on how this all works now and need to organize this all out as Oregon is already taking a large chunk of my paycheck and would prefer not to pay out more to Pennsylvania. Do I maintain Oregon as my permanent address and continue paying for Oregon income taxes or was I supposed to switch every rotation?

[tagteam]

Please check back. I am going to page Champ @Mike9241.

[letony4738]

Some more background. I guess it was a commonplace thing in the program for most people to change out address every rotation and not pay their home state’s income taxes. I do maintain a driver’s license in Oregon and am still under my parent’s Oregon car insurance until I finish my rotations and more permanently settle down than I do now with my rotations. However, I know of other people in my program who still have their home state driver’s license and car insurance, but have filed under each new rotation’s state. 

[TomD8]

It works like this:

For tax purposes, Oregon is your home or resident state (your domicile in tax terminology) until you abandon it and establish a new domicile in another state.    Establishing a new domicile involves such actions as getting a driver's license in the new state, getting license plates in the new state, registering to vote in the new state, etc.   As long as Oregon remains your domiciliary state, it can tax all your income, regardless of where you earn it.

Other states in which you live or work temporarily can tax you as a non-resident on income that is sourced to that state.  For example, if your move to PA temporarily and earn income there, then you would have to file a non-resident tax return in PA reporting that income, in addition to your home state tax return in OR reporting all your income.  In that situation OR would grant you an "other state credit" for the taxes paid to PA on the dollars taxed by both.  The credit prevents double taxation, which is prohibited by federal law.

On the other hand, if you permanently move to PA, making it your new domicile, then PA would become able to tax all your income, regardless of where earned.  In the year of that move, you would file taxes as a part-year resident of each of the two states, allocating your income accordingly.

A wrinkle here is that PA will tax you as a "statutory resident" if you meet certain criteria which are explained here:

https://www.revenue.pa.gov/TaxTypes/PIT/Pages/Determining-Residency.aspx#:~:text=A%20person%20is%20c....

State laws and definitions vary a bit, but generally a "statutory resident" is someone who is domiciled in one state but spends more than half the year living in another state.  Such a person will be taxed by the second state as if they were a resident.  This can lead to a situation of dual residency, in which the person must file as a resident in each of two states.  The "other state credit" would still apply, so there would be no double taxation.

A taxpayer who earns income in a non-resident state without an income tax, such as Washington or Texas, pays income tax only to his resident state.  All his income remains fully taxable by his resident state.