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All tax consequences of moving to a new state during COVID-19



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Taxes will be complicated for many this year.

Angela Lang / CNET

Filing taxes is a complicated situation for many this year from claiming missing incentive payments worry if you will disqualified of receiving one third stimulus check for submitting at the wrong time. But if you moved to another state last year because of the Covid-19 pandemic, which adds another set of problems to your tax returns

While working remotely in another state may seem of little importance, many people don’t realize that they actually have to pay and file taxes in that state. For example, if you moved from Indiana to New York to stay with family, all the money you earn there (even if you work remotely) is considered taxable income for that state.

The deadline for tax returns has been extended to May 17, so if you feel like it tax situation is complicated and you need more time consider filing a tax deferral to get everything sorted out. Here’s what you need to know about how moving in 2020 can affect your taxes.

You may be required to file and pay taxes in more than one state

Did you know that if you work in another state even for a day, the IRS expects you to file your taxes in that state as well? Neither did I until I spoke to an expert on the matter. Jared Walczak, vice president of state projects at the Tax Foundation, said that even if you just check a business email while on vacation, you “could have an obligation to file your taxes in that state.” H&R Block notes that if you’re filing in multiple states, how you apply will depend on things like the states involved and which state is considered the source of income.

This is where it gets complicated: the “convenience rule”. This is where a state can tax you no matter where your office is, even if you don’t currently work in that state, Walczak said. Currently, seven states use the convenience rule: Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania. Massachusetts is temporarily enforcing this rule due to the pandemic.

If you worked remotely in another state because of the pandemic, you may owe tax in the state where your office is located if it follows the convenience rule. However, you are also responsible for paying taxes in the state in which you currently live and work, Walczak said. This results in double taxation, which many states typically try to avoid by offering a tax credit to reduce tax liability.

There is also the case of Comptroller of the Treasury of Maryland v. Wynne which indicates that two states cannot tax someone on the same income. However, there is a clause: “where more than one state could plausibly tax the same income, each state may tax only its fair share of that income.” Each state has different rules, such as reciprocal agreements, so your situation may vary.


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What is the situation if I move to a state where personal income is not taxed?

The answer may depend on whether it is a permanent or temporary move.

“If you’re still domiciled in an income-tax state, that state will tax you year-round,” Walczak said. For example, if you live in California, but you live with your parents in Florida, you still have to pay California taxes. However, if you establish a residence in Florida, you only have to pay California income tax for the months you lived in the state.

The same rule applies to people moving to a state is doing tax personal income. For example, if you moved from Florida to California (and established a place of residence), you would have to pay California taxes from the time you moved there.

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You may have to pay taxes to another state.

Sarah Tew / CNET

What if I live in two different states year round?

If you’re lucky enough to have multiple homes in different states, each state you live in will look at the time you spend there each year. In this case, they use the six months and one day rule (also known as the 183 day rule) to determine where you are legally residing. (Although you can have multiple homes, you can have only one domicile.)

However, states can become intrusive when it comes to domicile. Even if you spend more time in a state with no income tax, Walczak says other states can base your residence on things like where your doctor is, the address you have on your insurance forms, your driver’s license, and even the church. you participate to determine if you really are a resident of another state.

Some people may be able to deduct their moving expenses. Here’s how to find out if you’re one of them

The vast majority of people cannot deduct moving expenses. This is because the relocation allowance has been temporarily suspended due to the Tax Cuts and Jobs Act of 2017. Therefore, if you have relocated for pandemic reasons, you will not be eligible for relocation allowance.

However, if you’ve relocated due to a military-related issue, visit the IRS expense deduction page and run the assessment to determine your eligibility. Before you start, you need to know the types and amounts of moving expenses, as well as the amount of moving expenses allowances. We recommend that you have your receipts ready.

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You may be able to declare relocation expenses, but it is very limited.

Sarah Tew / CNET

Will the IRS be involved in state relocations for someone who moved during the pandemic to reduce the tax impact?

No, this is not a focus for the IRS, according to Walczak. “Federal tax liability will not change as you move states. It’s a matter for the state,” Walczak said. “People are allowed to move and make economic decisions to reduce tax liability.”

Again, the state you moved from can be aggressive in determining whether or not you have really moved, but the federal government refused. The problem that arises is that those who unexpectedly moved to be with family during the pandemic are unlikely to have taken into account the tax implications, such as double taxation.

If you want to continue living in another state, update your tax withholding information with your employer now, if you haven’t already, as penalties can weigh on you if you don’t. However, it is important to note that some states can forgive mistakes as a result of the pandemic.

If you paid tax to the wrong state because you didn’t update your withholding information, take this into account. You have to pay taxes to the state you currently live in, but you should get a significant refund from the state you’re overpaying, Walczak said – but you could end up paying to the state where you live before getting the refund from the other state.

If you are unsure of your tax position, it may be in your best interest to speak with a tax advisor.

Here’s for more tax information how to track your tax refund after you have submitted a file, four reasons why you should file your taxes now and why you should set up a direct deposit when you submit a file.


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