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Tax implications of moving during Covid-19

Greg M. Kling, USC Accounting Lecturer joins Yahoo Finance Live to break down the states with high 2020 income tax rates as well as explain the tax implications when moving amid the pandemic.

Video Transcript

- Well, folks, it is unfortunately tax time. But there's a lot of really interesting questions that have been forming amid this pandemic. Let's say, for example, you've live in one place, and you've moved to another place, but you're still working remotely for the same company, does that have tax implications? Well, to answer that question, we have Greg Kling. He's a professor at the University of Southern California, Leventhal School of Accounting here to join us. And Greg, just to maybe set the stage here, you're a person who is from New York, you've moved down to Florida for half the year, but you're working for the company remotely back in New York. What does that mean for your taxes as you head into the filing season?

GREG KLING: Yeah, great question. So typically, each state will have their own rules. So if we don't get into, let's say, the details of a specific state, the idea is that you need to look at where you're performing the services from, and so in this case, if you're working for a company based in New York, but you're moving to Florida, and you're performing the services from Florida, then the first conclusion might be that you're really a Florida resident for tax purposes.

Unfortunately, it doesn't work out to be that easy, because you really have to look at the tax rules regarding the terms "residency" and "domicile", and then based on where your residency is, that's where you're going to pay your state tax to. And it could turn out where you might pay state tax to more than one state.

- So I'm listening to this. We had another guest on talking about this very issue, how to prepare going into April to make sure that you're not caught off guard. Walk me through the steps here on how people should be looking at this issue.

GREG KLING: Well, the good part usually is, is that if you're working for a company, especially one that's, let's say, multi-state, they're most likely going to make the determination of where they think you should be paying state tax, so when you look at your W-2 form that you get from your employer, typically it will say, here's the states they're reporting your wages in, and here's the state income tax they've withheld.

I think the difficulty comes in when you're a freelancer, an independent contractor, figuring out where you're working, who you owe the state tax to, and of course, I'm going to say as a tax person, you just need a really good tax consultant to talk to to assist you with preparing your state tax returns.

- Are there any interesting state by state changes that are worth mentioning? Something that's been kind of interesting to me is people who already work across state lines in the New York, New Jersey metropolitan area, for example. You've lived in Hoboken, you commuted to New York City to work. Are there any changes on that front for the 2020 filing year?

GREG KLING: Yeah, nothing specifically related to COVID or 2020. Most of these rules have been in the law for many years. So yeah, using an example of somebody who lives in New Jersey, previously worked in, let's say, Manhattan, they were paying their state tax to New York State, also New York City, paying their state tax to New Jersey, and then taking a credit, there's no change really in those rules. Because again, they've been around for quite a long time.

- So who comes out as a big winner on the back end of this? You made the New York, New Jersey example, but we've heard so many stories about people who are moving to places like Texas, as well as Florida, because of taxes.

GREG KLING: Yeah, I would say the big winners are going to be your home state, and maybe if we flip it and say who are the big losers, I think it's going to be this situation where a person lives in one state, but performs the services in another state. Imagine that that other state, they were getting income tax, they were getting-- and if there's city tax, like in New York City, there was city tax, there were sales taxes because people were getting coffees and lunches and things like that, those states now are the big losers because if people are working from home, and they're not commuting into another state to work, those other destination states now have lost a lot of revenue, not just income tax, but also sales tax as well.

- And then lastly, what is the biggest question that you're receiving from tax filers in this season? I know there are some questions about whether or not there are still elements of the Trump tax cuts that are in effect when it comes to the standard deduction. I guess one of the big questions that you're fielding from filers so far.

GREG KLING: I think the big questions are around state taxes, so I think this was a great issue. Where do I pay my state tax to? I've heard there's this six month rule, but how does that work?

I think on top of that, the other questions people are asking are just still trying to make sense of the Tax Cuts and Jobs Act. It passed in late 2017, but people are still trying to get their arms around it. The standard deduction is pretty straightforward, but there's things like the deduction for small businesses that even a few years later now, people are still trying to get their arms around.

- Greg Kling, it's good to talk to you today. CPA with USC Leventhal School of Accounting. He's a lecturer there.