Thinking About Relocating?
Two-thirds of home buyers and sellers would consider moving to a different city or area if their employer allowed them to work remotely on a permanent basis. Correspondingly, more than 70% of home buyers and sellers say they expect to be able to work remotely after the pandemic.1
Here’s a shock: Even if you don’t move, but you work remotely out of state (or several different states, if you travel while working), the income you earn could be subject to those states’ income tax — which could mean you’d be double-taxed. Each state has its own tax laws related to working remotely. While some set a minimum of workdays before being subject to state taxes, more than 20 states have a one-day rule for owing state income taxes.2 Some states may issue a tax credit to eliminate double taxation of that income, but the credit may not cover the full liability if your home state tax rate is higher.
If these circumstances applied to your work status in 2020, it might be a good time to consult with an experienced tax professional. There are many complex tax issues related to last year’s pandemic, including tax deductions associated with working from home, claiming a stimulus credit, rules associated with returning (rolling over) a required minimum distribution (RMD) you took (but didn’t have to) and many others.3 If you need a referral for a tax professional, we may be able to help out.
Some states and localities are excited about the prospect of remote workers permanently relocating to areas with a lower cost of living — so much so that they are offering incentives such as flights to Hawaii, an income tax break, or up to $10,000 in cash. Most of these inducements have strings attached, like already having a remote job and committing to living in the area for one or two years.4
Work arrangements aren’t the only reason people may consider moving in the near future. It’s common among new retirees to relocate to a state with a warmer climate, and/or one that has lower or zero state income taxes, such as Florida.5 In doing so, a retiree won’t have to pay state taxes on his or her retirement benefits. Remember, however, that states with no income tax have to drum up revenue somehow, which often means a high consumer sales tax or high property taxes.
On the other hand, if you’re looking to relocate to a state with generous city and county amenities, cultural events, and high-end real estate, consider a more affluent area. According to a recent analysis by Moneypenny, California, Massachusetts, Washington, New York, and Hawaii are on target to be the wealthiest states in the U.S. by 2025. That analysis was based on three combined criteria: real GDP, personal income per capita, and real estate prices.6
Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions.
1 Redfin. Jan. 12, 2021. “Redfin Survey: One-Third of Homebuyers Would Relocate If Remote Work Becomes Permanent; One-Third Already Have.” https://press.redfin.com/news-releases/news-release-details/redfin-survey-one-third-homebuyers-would-relocate-if-remote-work. Accessed Feb. 18, 2021.
2 Susan Tompor. Detroit Free Press. Feb. 18, 2021. “Where did you work remotely during COVID-19 pandemic? It may affect your taxes.” https://www.freep.com/story/money/personal-finance/susan-tompor/2021/02/18/remote-work-tax-returns-pandemic-taxes/4244398001/. Accessed Feb. 18, 2021.
3 IRS. Aug. 24, 2020. “IRS: Deadline to return distributions to retirement accounts is Aug. 31.” https://www.irs.gov/newsroom/irs-deadline-to-return-distributions-to-retirement-accounts-is-aug-31. Accessed Feb. 18, 2021.
4 Stacey L. Nash. Bob Vila. February 2021. “13 U.S. Cities Incentivizing Remote Workers to Relocate.” https://www.bobvila.com/slideshow/13-u-s-cities-incentivizing-remote-workers-to-relocate-578931. Accessed Feb. 18, 2021.
5 Katherine Loughead. Tax Foundation. Feb. 17, 2021. “State Individual Income Tax Rates and Brackets for 2021.” https://taxfoundation.org/state-income-tax-rates-2021/. Accessed Feb. 18, 2021.
6 Moneypenny. Jan. 28, 2021. “Ranked: The richest states by 2025.” https://www.moneypenny.com/us/resources/blog/ranked-the-richest-states-by-2025. Accessed Feb. 18, 2021.
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