I moved out of Virginia partway through the year but filed a full-year resident return -- was I supposed to file something different, and is my income after I left still taxed by Virginia?

Plain-English summary

A married couple left Virginia in March 2020, first moving to another country and then, in November 2020, relocating to a different U.S. state. For the 2020 tax year, they filed a Virginia RESIDENT return -- but claimed a subtraction for the income they earned after leaving, reasoning that income shouldn't be taxed by Virginia since they no longer lived there. The Department disallowed the subtraction and assessed tax on the full amount, since a resident return normally taxes all of a filer's income regardless of where it's earned. On appeal, the couple then submitted a NONRESIDENT return instead, arguing they had only lived in Virginia for part of the year.

The Department's answer split the difference: neither original filing status was actually correct. Virginia law treats someone who becomes a resident of another state during the year as taxable by Virginia only for the portion of the year they were actually a Virginia resident -- that's "part-year" residency, a distinct filing category from both full-year resident and nonresident status. A part-year resident has to apportion their income, deductions, subtractions, and other adjustments between their Virginia-residency period and the rest of the year, using a specific form (Form 760PY) rather than subtracting later income on an otherwise-resident return or filing as if they'd never been a resident at all.

Because the couple left Virginia in March 2020, they were Virginia residents only through that point, making them part-year residents for the year. The Department wouldn't process the nonresident return the couple submitted with their appeal, since that wasn't the proper filing status either. The good news for the couple: income they earned during the period after they left Virginia won't be taxed by Virginia at all (so long as it isn't otherwise Virginia-source income) -- but they need to actually file the correct Form 760PY to get that result recognized, which the Department gave them 30 days to do before it would instead finalize the assessment based on the information already on hand.

What this means for you

Anyone who moves out of Virginia partway through the tax year

You're a "part-year resident," not a full-year resident and not a nonresident. You must file Form 760PY, which apportions your income (and deductions, subtractions, additions, and personal exemptions) between your Virginia-residency period and your time living elsewhere -- rather than filing a full resident return and trying to subtract out post-move income, or filing as a nonresident.

Anyone who filed the wrong return type after a mid-year move

Filing a resident return and subtracting later income, or filing a nonresident return, generally won't be processed as your proper filing -- the Department will bounce it back and expect a part-year return instead. Correcting course usually just means filing (or amending to) the correct Form 760PY; it doesn't mean you lose the part-year tax treatment you were entitled to.

Anyone in this situation who received an assessment based on full-year residency

You have a limited window (often 30 days from the determination letter, as here) to submit the correct part-year return before the Department finalizes the assessment using only what it already has on file -- don't let that deadline pass if you believe you qualify for part-year treatment.

Common questions

Q: I moved out of Virginia mid-year -- what's my Virginia filing status?
A: "Part-year resident." Virginia taxes you as a resident only for the portion of the year you actually lived there; for the rest of the year, your income generally escapes Virginia tax unless it's separately Virginia-source income.

Q: Can I just file a normal resident return and subtract out the income I earned after I left?
A: No -- that's not the correct filing method. Part-year residents must use Form 760PY to apportion income between their Virginia-residency period and the rest of the year, not subtract post-move income from an otherwise full-year resident return.

Q: What if I file a nonresident return instead, since I only lived in Virginia part of the year?
A: That's also not correct if you were an actual Virginia resident for part of the year -- the Department will not process a nonresident return in that situation; you still need the part-year resident form.

Q: Is income I earned after leaving Virginia taxed by Virginia?
A: Generally no, as long as it isn't otherwise Virginia-source income (for example, income from Virginia real property or a Virginia business) -- but you need to file the correct part-year return to have that treatment applied.

Citations and references

• Va. Code § 58.1-303 (an individual who becomes a resident of another state during the year is taxable as a Virginia resident only for the portion of the year of actual residency)
• 23 VAC 10-110-40 (part-year resident's Virginia taxable income computed by apportioning income/deductions/subtractions/additions/modifications to the Virginia residency period)
• Va. Code § 58.1-321 (filing threshold determining whether a part-year resident must file a Virginia return)

Subject

Residency : Part Year - Filing Requirements Administration: Returns - Proper Return

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-91

Original ruling text

May 5, 2022

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2020.

FACTS

The Taxpayers, a husband and wife, moved to * (Country A) from Virginia in March 2020 and then relocated to *** (State A) in November 2020. The Taxpayers filed a Virginia resident return and claimed a subtraction for income primarily from compensation received while they resided outside Virginia. The Department disallowed the subtraction and issued an assessment. The Taxpayers appealed, contending they only lived in Virginia for part of the year.

DETERMINATION

Virginia Code § 58.1-303 provides that any individual who becomes a resident of another state during a taxable year shall be taxable as a Virginia resident for only that portion of the taxable year during which that person was a resident of the Commonwealth. Title 23 of the Virginia Administrative Code (VAC) 10-110-40 further explains that the Virginia taxable income of a part-year resident shall be computed by determining income, deductions, subtractions, additions, and modifications attributable to the period of residence in Virginia. As such, any individual who is a part-year resident of Virginia during a taxable year must apportion their income between their period of residence in and outside of Virginia on a schedule of income filed with their return (Form 760PY). Part-year residents who cease residing in Virginia during a taxable year, and meet the filing threshold of Virginia Code § 58.1-321, must file a Virginia part-year return.

The Taxpayers were residents of Virginia until they left Virginia in March 2020. As such, they were required to files a part-year return for the 2020 taxable year.

Because the Taxpayers’ proper filing status was as part-year Virginia residents, the nonresident return submitted with the appeal will not be processed. Income attributable to their period of residency outside Virginia, however, would not be subject to Virginia income tax provided it was not otherwise Virginia source income.

Therefore, the Taxpayers should file an amended Virginia part-year return for the 2020 taxable year to report the income, deductions, subtractions, additions, modifications and personal exemptions attributable to the period of residence in Virginia. The return should be filed within 30 days of the date of this letter and mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23216-7203, Attention: *. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If such return is not filed within the allotted time, the assessment will be adjusted based on the information available.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3963.B