If you’ve been working from home for the past six months, you may be ready for a change of scenery and may be entertaining the idea of moving.
After all, if you don’t have to be tethered to your office, maybe you prefer to be closer to family (more babysitting!). Or you’d like to relocate someplace where you can hike or surf. Or you might just want to move someplace cheaper or less crowded.
But if you’re eyeing a move to another state or region, factor in how that may affect your job, your pay, your benefits and your taxes.
Before calling the movers, here are four questions you’ll want answers to from your HR and benefits department as well as from a professional tax adviser.
Will my company even let me work somewhere else?
No matter how cool your company is with you working from home, that doesn’t mean it will be fine with your home being anywhere.
If you move someplace where your company doesn’t have employees or satellite offices, it may have to incur greater administrative and tax burdens to satisfy its legal duties as an employer.
“Not all employers will be willing to let employees work out of state because it may mean additional obligations on their part,” said Katie Brennan, a knowledge advisor at the Society for Human Resource Management.
Or you may work for an employer that simply wants the staff back in the office as soon as it’s safe to gather in large groups again. So it may not want to let everyone scatter to the wind now.
Will relocating affect my paycheck?
How much you are paid will depend in part on the cost of labor where you choose to live, said Tauseef Rahman, a partner specializing in compensation strategies at the HR consulting firm Mercer.
So if you move to a less expensive locale where labor is cheaper, you may get paid less. Where it is more expensive, you may get paid more.
But if you have a nationally competitive job and one that doesn’t necessarily require you to be at a fixed location, there may be a much smaller difference in your pay than you’d expect, Rahman said. That’s because your employer has to compete with companies everywhere for your services.
How will my benefits change?
State and local laws regulate many benefits that employers provide.
The biggest is health insurance. You may have to switch to another plan offered by your employer if the insurer you have now doesn’t offer coverage in the state where you’re moving.
Or it may be that none of the insurance plans offered by your employer are available in your new state or region because your company doesn’t do business there.
That could mean you need to go on a public exchange or your employer may come up with another option.
Your paid leave benefits may change, too – for better or worse depending where you’re going.
For instance, California doesn’t allow employers that offer paid vacation days or paid time off to impose a “use it or lose it” policy as many states do. Instead those days are considered earnings that can accrue and must be paid to you when you leave your job.
Or you may gain or lose a required minimum number of paid sick days depending on the jurisdiction where you relocate.
Also, if there are any changes to your paycheck when you move, that will change how much you receive in matching contributions to your 401(k) since they’re based on a formula tied to your earnings.
How will moving affect my taxes?
This is the most complicated question to answer. So consult with an accountant or other qualified tax preparer. Otherwise, you may find yourself saddled with a bigger tax bill.
Most states have income taxes and they tax earnings generated by work done in-state. But find out if the state where you are living now and the state where you’re moving to have a reciprocal tax agreement – meaning if you work in one but live in the other, you will only owe income tax to one state, most typically your home state. If not, you may end up owing taxes to both states.
Find out, too, if you’ll be affected by any of the seven states – Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania – with a “convenience of the employer” rule.
“That rule stipulates that you owe income taxes where your company office is located,” said Jared Walczak, vice president of state projects at the Tax Foundation. “[Your employer’s] state will want to tax you, and your home state may tax you too because you’re living and working there.”
And if you’re relocating from a high-tax state like New York to a state with no income tax – such as Florida – you still may end up paying income taxes barring a reciprocal tax agreement or other provision.
So first ask your payroll tax department how your withholding will change when you move.
“The employer’s only obligation is to the state to make sure they [withhold taxes] properly,” said Cosimo Zavaglia, a partner in the tax practice of law firm Morgan Lewis.
But when you file your taxes, if you think you’ve been overwithheld, claim a refund. Just make sure you have backup documentation about your work location to make your case if you get audited, Zavaglia said.
Such documents might include a calendar or travel records. And if your company is based in a state with a “convenience of the employer” rule, you also may need documents from your employer confirming your assigned work location is no longer where the company is based.
Best advice to protect yourself: “Know the rules of the states you’re dealing with,” Zavaglia said.