Welcome to Florida! You can now enjoy the benefits of living in a state with no state income tax. But don’t put your checkbook away just yet. In certain situations, your former state can tax income that you receive even after you establish residence in Florida. Paraphrasing a famous movie quote, just when you thought you were out, they pull you back in.
Take the example of a performance bonus award. Suppose Peter moves from New Jersey to Florida on January 1, 2019, after accepting a transfer to his employer’s Miami office. In March 2019, Peter receives his annual bonus, almost three months after leaving New Jersey. However, the criteria for the bonus is based on his job performance in 2018. As a result, New Jersey may argue that the bonus was earned in 2018, and is therefore subject to New Jersey state income tax.
Another situation involves Restricted Stock Unit (RSUs) grants. Continuing our example, Peter’s employer granted him RSUs on June 30, 2017, that vest in two years. Peter recognizes income from the RSUs when the shares vest on June 30, 2019, which is six months after he moved to Florida. However, according to the New Jersey Division of Taxation, the RSU income is subject to New Jersey income tax to the extent it was earned while he was living and working in New Jersey. This is determined by dividing the number of workdays Peter was employed in New Jersey after the grant date by the total number of workdays from the grant date to the exercise date.
In Peter’s case, he moved to Florida three-quarters of the way through the vesting period, and will, therefore, pay New Jersey tax on approximately 75% of the proceeds.
One thing to keep in mind is that it is the employer is generally responsible for calculating the source income from each state and reporting that income on your W-2. But it may be a good idea to review the calculation to make sure the assumptions used are reasonable.
As you can see, moving from a high tax state to Florida will save you taxes, but those benefits may be delayed in certain cases. If you think one of these situations may apply to you, please feel free to contact our office and we would be happy to discuss.
Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
Todd Schanel has been a principal at Schanel & Associates since 2004, where he specializes in financial planning, tax planning and consulting services. He also serves as Founding Principal and Director of Investment Advisory Services at Core Wealth Management, our sister company, where he leads an accomplished professional team offering independent and objective financial advice to help clients achieve their financial goals. Todd has been a CFA Charterholder since 2005, and in 2007 he earned his Certified Financial Planner® designation and became a licensed CPA. In 2015, he earned the Certified Valuation Analyst (CVA) designation.
