Relocated Out-of-State During the Pandemic? You May Owe State Tax
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What tax issue arose for workers who relocated during pandemic lockdowns?
Here's your Money Briefing for Monday, June 1st. I'm J.R. Whalen for The Wall Street Journal. When the pandemic lockdowns began in March, they displaced millions of office workers. Some set up workstations at home, others traveled to a weekend house, and some went to live with family for a few months. If you relocated to a new state, even temporarily, you may need to file tax returns there and possibly pay taxes as well.
One of the questions that comes up is, well, how is the state even going to know that you've been there? And they might not. But, of course, you sign your tax return under penalty of perjury.
This raises plenty of questions, like what if you relocate to a state that doesn't have income tax?
How could temporarily working from another state trigger state tax filing requirements?
And how strict is the IRS with all this? Wall Street Journal tax reporter Laura Saunders will have answers coming up.
If you relocated to an out-of-state home when stay-at-home orders were imposed earlier this year, Uncle Sam wants to know about it. You could owe taxes on money earned for the time you spent working remotely. And Wall Street Journal tax reporter Laura Saunders is here with details. So Laura, when people were scrambling to get out of town back in March and April, many probably didn't realize that this would be an issue. But these rules aren't new.
States have always taxed non-residents, people who are just passing through. These rules have been on the books for a long time, but they're really newly important this year. In the past, the rules often applied to traveling salesmen or perhaps to athletes and entertainers. They can impose state taxes on you if you're just there for one day. There have been always stories about Michael Jordan and Alex Rodriguez and how much taxes spending one day in California would cost them to play a game.
What criteria do states use to determine nonresident tax liability?
So what criteria is used to figure out how people's tax liability might be affected?
how long you're there, how much income you earn, things like that. And every state is different. It's kind of a mishmash. The only place that doesn't tax non-residents is District of Columbia. That might not surprise you. Think of all those congressmen that come from other places. So they're prohibited. But all states that have income tax is pretty much tax non-residents, people who are just passing through.
So trying to figure out how much money you make in a state or across a few states means you've got to keep track of a lot of numbers.
Yes, and we advise everybody to track your days because you may have new filings this year. You could even have new taxes. But you don't want to know on the back end. You want to know on the front end because there might be things you could do. At least you need to keep good records, but also you might shift where you are. Cut it by a day or two.
How strict is the IRS typically with this?
Well, the IRS is not strict at all. These are state tax authorities. It's the states who are taxing this income, not the IRS. And they can be extremely strict. California and New York are famous for being just very, very aggressive about taxes on non-residents. And in fact, you know, this year, Andrew Cuomo was asked at a press conference about these people that have come to New York, health professionals, to help out with the pandemic. And he said, unless New York gets more federal money, they're going to have to tax the income earned by people who came to help with a pandemic. You know, they're going to tax it in New York.
And what's an employer's responsibility to keeping track of all these numbers?
Well, that's a really good question. Employers need to get their payroll straight, you know, who's being paid what where. But if you're a business owner, just the fact that you are present in a state may raise taxes on your income because of something called nexus. If you're physically present somewhere, that could really shift the taxes on a business. So that's a good thing to check on as well. If you, say, work were a lawyer working for yourself in New York and you went up to Vermont and kept working from Vermont, you might owe Vermont taxes on your business income.
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Chapters
4 chapters
1
What tax issue arose for workers who relocated during pandemic lockdowns?
0:05–0:44
2
How could temporarily working from another state trigger state tax filing requirements?
0:44–1:52
3
What criteria do states use to determine nonresident tax liability?
1:52–5:03
4
How strict are states like California and New York about taxing nonresidents?
5:03–5:49
Speakers
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