5 Things to Know Before Relocating for Your Next Job
In the wake of the pandemic, your job may now be 100% remote, and it could incentivize you to relocate to parts of the country with a lower cost of living. With that decision, comes additional challenges and questions on taxes, especially if your company is still headquartered out of a different state, such as New York or California. EP is here to help you understand how relocation may impact your taxes and benefits, so you can best prepare for your big move ahead!
1. Temporary Relocation vs. Permanent Relocation
Employees who are temporarily working in a different state from their current state of residence are taxed differently than employees who decide to permanently telecommute, and move to another state for convenience.
In most cases, employees who work temporarily in another state will receive a credit on their resident state person income tax return to offset the nonresident state tax liability.
Some states still require employees to pay state tax in their state of employment, even after relocating to another state. Additionally, employees may be taxed by their new resident state, creating double taxation! This requirement is called "the convenience rule," and it stipulates that if an employee's job is based with an employer in one state, but the employee lives and works in another state out of convenience rather than because the employer requires it, then that employee owes income tax to the state where the job is based.
The following states follow the convenience rule: New York, Arkansas, Connecticut, Delaware, Nebraska and Pennsylvania (Philadelphia); and since the pandemic, Massachusetts has also adopted this rule.
2. State Disability
Only a few states provide disability insurance (SDI) for their residents, so if that’s an important factor to weigh in relocating, employees should consider the following states that do provide it: CA, DC, HI, MA, NJ, NY, PR, RI, and WA. If an employee moves from one of these states to a non-SDI state, they will still be covered for about 12-18 months after they move, but it will expire beyond that time frame. For employees who move from a non-SDI state to an SDI state, coverage begins after 12-16 weeks of employment.
3. Local Taxation
Quite a few states have local resident taxes. If a company has no physical presence in a particular state where an employee decides to relocate, they may not be required to register and withhold local taxes from their employee’s earnings. However, employees who eventually become residents in their new locations may be expected to file an annual local tax return (or it may be included in their state return).
Additionally, some states have local taxes in only one or two cities or counties. For instance, San Francisco is the only city in California that has a local resident tax (San Francisco also taxes nonresident employees working in the city!)
It’s important to be aware of the local tax requirements; to avoid late penalties and interest, employees can send in quarterly tax payments instead of a one-time annual payment at the end of the year. Anyone becoming a resident in a new location should check the website of their new city/county/township to verify the local requirements.
In addition to local taxation, you may want to review your federal tax withholdings and ensure they are aligned with your new living situation. For more information about federal tax withholdings, and how to make adjustments to your W4, visit The Beginner's Guide to Federal Payroll Tax Withholding.
4. Overtime Calculation
Labor laws differ depending on where employees pay their withholding taxes. Some states have very few worker protections and rely solely on federal guidance, while other states provide more protection for employees.
California, Alaska, and Nevada calculate overtime for nonexempt employees based on the number of hours worked in a day. Any time worked over 8 hours qualifies employees for premium overtime pay. In all other states, overtime is calculated after an employee has worked 40 hours in a work week. A work week is any 7 consecutive days, starting with the same calendar day each week. It is a fixed and regularly recurring period of 168 hours, or 7 consecutive 24-hour periods. The work week need not coincide with the calendar week and may begin on any day and at any hour.
5. Meal Penalties
California has probably the most extensive meal and break laws in the country, however, the following states also enforce meal/break requirements: CO, CT, DE, IL, KY, ME, MD, MA, MN, NE, NV, NH, NY, ND, OR, RI, TN, Vt, WA, WV, Guam, and PR. Of these states, seven (7) also require rest periods, and include: California, Colorado, Kentucky, Minnesota, Nevada, Oregon, and Washington.
If an employee is working remotely in a state that doesn’t enforce meal/break requirements, but their company is based in a state that does mandate it, the employee is not entitled to any additional financial payment beyond regular pay for the time worked without a break.
Moving is a big decision, and you may have additional questions. To help you find answers, the payroll, tax, legal, finance, and other skilled teams of experts here at Entertainment Partners are happy to weigh in and support your work goals. To learn more about our services or to get help from one of our experts, visit our Expert Advice page, or click the green contact us button today!