The world has changed and businesses are operating in a variety of ways now, including the WFH (work-from-home) and hybrid options. If you’re one of the millions of workers who appreciate working from home, you might be tempted to change where you call home. Or maybe you just want to be nomadic, hopping from place to place. After all, if you don’t need to be in the company office, what’s stopping you from living either part-time or full-time in another state? Before you start making plans to leave town, get to know some of the watchouts that come with a move and WFH plan.
Working from A Different State Might Affect Your Taxes
Let’s say you want to spend half the year in a different climate out of state, but you keep your primary residency the same. Most states start to consider you a resident when you’ve stayed there 183 days, even with a primary residence elsewhere. Some states have shorter or longer timelines. You could owe taxes in that state simply for working there for an extended period of time, as well as your home state. While it’s not likely you’ll be double-taxed, you could still owe taxes in both places. Check with a tax advisor or look into residency and tax laws for the specific states you’re considering living part-time. Also, you could plan your stay so that you’re sure not to reach the limit for being considered a resident. But beware of that strategy also! Some states require filing a tax return for any length of time spent working there, even a business trip. Realize that a nomadic way of working from home could mean filing multiple tax returns.
Moving Might Increase Your Taxes
Currently there is no income tax in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Anyone moving from one of these states to a state with income tax will likely experience higher taxes, especially if they don’t adjust their withholdings accordingly. What about moving to reduce taxes? Some people think they can reduce their taxes by living temporarily in a lower-tax state. Unfortunately, tax laws are not in your favor for this strategy. If lowering your taxes is part of the plan, you’ll probably have to change your primary residency to that state. Again, do the research and consult with a tax expert.
Your Benefits Might Be Affected
Check with your employer and your medical insurance carrier about how moving to a different state could affect your costs. Make sure you still have access to care that is covered by your plan if you switch states. It’s possible you need to change providers.
Also, the laws governing 401k contributions may vary at the state and local level. Research whether this important retirement benefit would be affected.
Research First, Then Embrace the Change
For many people, working from home can now mean working from anywhere. But as with any move, there can be tax consequences. Get professional tax advice before making the leap. Also, ensure your employer is aligned with your decision to move to a new location and be aware of any change in costs regarding benefits that come with a change in residency.
Real Estate Term of the Week
Resident of Ohio for Income Tax Purposes: To find out how Ohio defines resident, part-year resident, and non-resident for income tax purposes, go to this Ohio Department of Taxation resource.