If you relocated out of state during the coronavirus pandemic, whether to stay with family members or hunker down in a vacation home or Airbnb, you might want to find out whether your temporary change of scene will make your 2020 taxes a little more complicated.
Here’s why: If you worked remotely while living in a different state than the one associated with your permanent address, you might be required to file two state income tax returns. As Marketwatch explains:
If the “new normal” means a new address — even a temporary one — that can mean a new set of tax issues, experts say. That’s because states have different rules on how long it takes before a non-resident needs to start paying them income taxes.
In almost half the country, it can take one day for the requirement to kick in. Elsewhere, the clock starts after two months. Meanwhile, 13 states said they wouldn’t be requiring income tax from people who temporarily stay in their borders during the pandemic.
The 13 states currently waiving the income tax requirement for COVID-19 relocations are Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina. If you relocated to one of the 37 states not on that list, it’s time to look up the tax laws in your temporary home—or (this is my personal recommendation) talk to a CPA.
This non-resident income tax situation can get really complicated, as not all states play by the same rules. Some states have what are called “reciprocity agreements,” by which people who live in one state and work in a neighboring state only have to pay income tax in their home state. In most cases, any tax you pay in your non-resident state will be credited against the tax you pay in your resident state (that is, you won’t be taxed twice on the same income), but there can be exceptions to this rule. You might need to talk to your employer about adjusting your withholdings so that each state gets its share of the money that comes out of your paycheck, and you might have to file a non-resident tax return in the state to which you relocated even if the rules indicate you don’t owe any tax in that state.
If all of this sounds confusing and time-consuming, don’t let that get you down—and don’t put all of this off into the future, either, as by then it could become even more confusing and more time-consuming. Keep records of when you lived where, how much money you earned while living in different states, what kind of tax withholdings and/or estimated tax were paid in each state and so on.
And then, once your records are in order, talk to a CPA. They can answer your questions, prepare your non-resident state tax returns and make the whole process much less of a nightmare.