2020 was a disruptive year in so many ways, and for some of us, that meant moving between states for a variety of reasons. Maybe you needed to move back in with your parents in another state, moved to get away from the densely packed city, or decamped for new environs once you realized the freedom of remote work.
Tellingly, sales of existing homes shot up to a 14-year high in August 2020 as people decided to restructure their lives in the face of the ongoing pandemic.
Filing taxes this spring, when you moved or temporarily relocated last year, presents some complications. You'll have to be vigilant to avoid double taxation and to make sure you're paying the right portion of your state income tax to each state in which you lived or stayed. This is, of course, ever-more-complex if you moved among states multiple times.
Most states require residents to pay income tax. The only ones that don't are Alaska, Florida, Nevada, South Dakota, Texas, and Washington. (New Hampshire and Tennessee just tax interest and dividends, and Tennessee will stop doing even that by 2022.)
Each state has its own rules about what makes someone an official resident who needs to pay income taxes. It probably depends on whether you have permanently or temporarily moved to the new state. It's important to know what the rules are in each state you've lived in during 2020 to pay your taxes accurately.
One complicating element to this situation is that just because you've established residency in a new state doesn't mean you are officially not a resident of the old one. This means that you may be on the hook for state income taxes in two places at once. Being taxed twice on the same income is called "double taxation," and many states offer a tax credit in these situations to help you avoid it. Rules vary by state, as in reciprocity agreements, so you'll need to check the guidelines for the states involved in your situation.
You will likely have an income tax obligation to any state you did work in during 2020. The longer you've been working from your new location, the more likely you will have a tax obligation to that state.
So if you spent the first part of the year working in New York and then relocated to Oregon for the remaining months, you may owe state income tax to both of those states for some portion of 2020.
Even more complicated is the fact that some states subscribe to something called the "convenience rule," — which says the state in which your office is located can require you to pay income tax even if you're working remotely from out-of-state. If this is your situation, too, that means you may end up subject to double taxation and require checking whether you can use state rules that help you avoid it.
As we discussed above, if you worked in a particular state — whether while living there in a residence of your own or renting a place via Airbnb, VRBO, or some other service — you're likely required to pay income taxes in that state.
The tricky part is that the state you usually live in — if it's different from where you were renting your temporary place — may continue to consider you an official resident. And regardless, if your employer's office is in that state, you may be on the hook for taxes regardless of your official residence status.
The federal government has extended the tax filing deadline to May 17, and many states are following suit. This gives you more time than usual to figure things out if you've been in multiple states this year or living in a state other than your typical home base.
If you need even more time to sort out the confusing details of your situation, you can file an extension, which will give you until October 15 to file. Working with a tax professional is a good idea if you've been living in multiple states recently, so make sure you're meeting all your tax obligations for 2020.
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