Relocate to a New State? Avoid These Tax Tangles - Slimmer Payments

Relocate to a New State? Avoid These Tax Tangles

The pandemic has had far-reaching implications on the economy. People may be overlooking the tax implications of COVID-19.

This issue first came to light back in May, when New York Governor Andrew Cuomo said that out-of-state health care workers who came to help with the pandemic would face New York income taxes.

Cuomo’s comments generated outrage. The truth is, in most states that have a state income tax, they will tax anyone who earns money, even if they file their federal tax returns elsewhere. Even working a single day in some states can trigger a tax bill.

According to MarketWatch, “multistate taxation has long been a headache for entertainers, athletes, professional speakers and others who earn money in more than one state. Snowbirds, retirees who move south for the winter, can face it as well. Now it could be a problem for many people who relocated, however temporarily, because of the pandemic.”

According to a Pew Research Survey poll in early June, nearly one in 10 adults aged 18 to 29 had relocated because of the pandemic. Overall, 3% of adults said they’d moved, and 6% said someone else had moved into their households.

Those who moved cited reducing their risk of infection (28%). College campuses closing (23%), wanting to be with family (20%), and job loss or other financial issues (18%).

Remote working and Zoom conferences have become the new normal. So, multistate taxation issues may become more widespread as telecommuters relocate to cheaper areas.

How to Avoid These Taxing Issues When You Relocate to a New State

Some states already have longstanding reciprocity agreements, usually with neighboring states. These will prevent commuters from having to file multiple state tax returns. In addition, 13 of the 41 states that have a state income tax say they would give remote workers a break if they moved because of the coronavirus.

Eileen Sherr, senior manager for tax policy and advocacy for the Association of International Certified Professional Accountants, says to avoid any interstate tax tangles, talk to a tax pro to assess what your liability might be, and discuss the situation with your employer. You may need to modify your withholding.

Sherr also recommends that people keep good records to track how many days they earned money in each state and how much.

It’s possible that Congress could provide some help. A proposal in the Senate’s pandemic relief bill would require that states maintain the pre-pandemic status quo. In other words, pay for newly remote workers would be taxed the way it was before the pandemic. The bill also would create uniform rules for assessing state and local income taxes.

Have you had to relocate due to COVID-19? Are you aware of the income tax implications? Please reply using the comments below.

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