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Beware of the WFH (Work From Home) Tax!

By June 28, 2020July 15th, 2020Insurance

Thanks to COVID-19, the concept of telecommuting has gained a solid foothold. Its appeal to workers is obvious: it allows people not just to avoid a commute but even to relocate to an area that best fits their lifestyle preferences.

You can think of this as “lifestyle arbitrage.” A key driver of this is that workers can relocate to somewhere with a lower cost of living while still keeping their higher pay. But there are other factors, too: choosing a place with the right kind of “vibe” you’re looking for, or simply looking for more space to raise your family. A sense for where taxes may stay low in the future is another growing consideration.

Or how about looking for a state where your teenage kids can gain residency and earn the benefit of in-state tuition for college? Whereas older workers may be more interested in states like Tennessee that have nicer weather, affordable housing, and no state income taxes. The fact that borrowing rates are so low also means people have the opportunity to stretch their dollars for buying a home even further right now.

But there is another, a major factor that everyone should consider: some states may attempt to tax the income of former residents who moved out of the state but are still employed by the same company!

Case in point: New York state’s “convenience” tax, which taxes employees who moved out of the state for their own “convenience.” The state–and New York City–assert that your income is still subject to state and city taxes unless you can prove you are working elsewhere out of “necessity.”

As it is, this law would make it much harder for future New York employees to be able to “lifestyle arbitrage,” even if their friends and family in other states can do so. And you can imagine other high-tax states also wanting to adopt this approach now to avoid losing revenue–unless it starts to drive companies to relocate out of their states altogether.

All the more reason you need to know the rules before deciding on a major lifestyle change–and have a strategy to avoid the nasty surprise of major bills.