If your domicile status has changed because of the COVID pandemic, how can you avoid unexpected tax bills? Ani Hovanessian, chair of Venable’s New York Tax and Wealth Planning Group, was quoted in the New York Times on developing a proactive tax strategy as lockdowns disrupt the lives of millions of Americans. For some, a key part of their residency for tax purposes — their domicile status — may have shifted since March for a number of reasons: they are now working from home, they’ve fled a hot spot, or they thought they could ride out the pandemic in a vacation house.
According to the article, these unplanned geographic dislocations could result in unforeseen tax bills for those who are not diligently keeping records. Many states, including New York, have set a threshold of 183 days, or half the year, to determine residency. Yet three months into the pandemic, New York has not issued guidance on whether it will count the days in quarantine toward its state residency.
“People are sure there are going to be exceptions, but we need to be very cautious,” said Hovanessian. “Even though we’re in a pandemic and unprecedented times, these states are going to need tax revenue to make up for all the public policy and aid decisions they’re making now,” she added.
Many professionals commute to another state for work. Working from home during the pandemic has raised the question of which state then gets to tax that income.
The situation is worse still for doctors, nurses, and other emergency personnel from other parts of the country who went to New York to help. Their income could be taxed at higher rates. “If they’re earning income and not just volunteering, they’re earning New York income and their income will be taxed by New York,” Hovanessian said. “This is where the taxman looks more like the Grim Reaper.”
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