12 Aug What happens to taxes if I move to Florida and my wife stays in N.J.?
Q. I retired last July but my wife is still working part-time in New Jersey. We own a home in New Jersey and a home in Florida. Both homes are paid off in full. I stay in our Florida home more frequently than my wife does because of her job. As of now, I’m in Florida about half the year. I have deferred salary that I earned while working in New Jersey and it will be paid out annually over the next eight years. I know I have to pay federal and New Jersey income tax no matter where I live, and I’m okay with paying my fair share. Should I become a Florida resident? What happens if my wife remains a New Jersey resident?
— Retired and loving it
A. Congratulations on your retirement.
Your questions about residency and domicile are common ones.
And your position is somewhat unusual.
“You are the first New Jersey resident that I know of that is contemplating becoming a Florida resident and claiming Florida as your domicile and does not mind paying New Jersey income tax on your retirement income,” said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield. “The main reasons why people change their resident state are taxes and retiring from their employment.”
Based on your willingness to continue to report your deferred income as a New Jersey source and pay New Jersey taxes, you should be able to claim Florida as your domicile if you take the proper steps, Papetti said.
“A domicile is the place you consider to be your permanent home even though you may have multiple residences,” he said. “Besides the test of your presence in a state, the other major factors in establishing a change in domicile are demonstrating intent to remain in the new state and to abandon your former domicile. These are harder to prove than physical presence, and there is no one factor that tax authorities consider conclusive.”
Given that your wife will remain a New Jersey resident, you will have to plan carefully to prove your intentions but doing so is not impossible. Steps might include:
· Moving voter registration and voting in local elections
· Changing the address on personal bank and investment accounts
· Changing driver’s license, car license and registration
· Establishing relationships with professionals such as doctors or accountants in Florida
· Updating legal documents such as wills, trusts, powers of attorney and living wills with your Florida address
While no one action will make or break a domicile claim, taxpayers are wise to offer as much evidence as possible to tax authorities, Papetti said.
“Although income taxes are not the primary reason for claiming Florida as your domicile, most taxpayers are motivated to change their domicile to a state with a lower tax or no tax rate such as Florida,” he said. “The state the taxpayer leaves such as New Jersey will focus on clear and convincing facts that support Florida as your new domicile state.”
Relocating items that are near and dear to your heart such as artwork, furniture and family treasures can support a change of domicile, he said.
In addition, if you want to claim Florida as your domicile, you should file a Florida Declaration of Domicile with the clerk of the court in the county of your residence.
Once this is done, you should file and claim the applicable homestead exemption in Florida, he said.
Another important point: Even though you are assuming that your deferred annual salary payments are subject to New Jersey state income tax, that may not be accurate, Papetti said. Public Law 104-95 (US Code, Title 4 Section 114) prohibits a state from taxing nonresidents on income they receive from:
· Pension plans that are qualified under the Internal Revenue Code which includes IRAs and annuity plans, and;
· Certain deferred compensation plans that are nonqualified retirement plans, but meet additional requirements.
“Therefore, if your deferred salary payments are from a nonqualified deferred compensation plan and you qualify as a resident of Florida, this income should not be subject to New Jersey state tax,” Papetti said.
As for tax reporting, when it comes time to file your tax return, you do have the ability to change your domicile to Florida while your wife continues to work in New Jersey and claim New Jersey as her domicile, he said. You can continue to file a joint federal tax return, but you would then file separately for New Jersey state purposes, he said. If your deferred salary qualifies as noted above, you will not need to file a New Jersey nonresident return, he said.
“You should also be aware that you and your wife should only claim one homestead exemption as a 2016 court case found that a couple was entitled to only one homestead exemption,” Papetti said. “Each received a homestead benefit as the wife claimed an exemption for a home she solely owned in Florida and the husband claimed a homestead exemption for a home he solely owned in Indiana.”
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This story was originally published on Aug. 12, 2021.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.