PODCAST: Taxes and Insurance When Working from “Home”

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David Muhlbaum: During the COVID-19 pandemic, many of us shifted to working from home and what followed was a considerable number of people changing their definition of home by moving to another state or even another country. Kiplinger contributing editor Lisa Gerstner has guidance on how to navigate the financial consequences of that: taxes, insurance, and more. Also, why tax season starts late this year and another look at student loan forbearance, and forgiveness. That’s all coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com senior editor David Muhlbaum, joined by senior editor Sandy Block. Sandy, how are you doing?

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Sandy Block: I’m cold but I’m great.

David Muhlbaum: Awesome. I’ve gotten my W-2 form sent to me, and since we share an employer, I’m guessing you did, too. For a lot of people, that’s the marker of the start of tax filing season, but as with so many things, this year is different. When I say “this year,” I mean the tax year 2020. I’m not a file right away person, but many people are. Sandy, those who are eager for a refund, they’ve got to wait.

Sandy Block: Yes, they do have to wait. First, to clarify, everybody knows that April 15th, or sometimes it’s the 16th if the 15th is on a Sunday or something, that’s the last day you can timely file, unless you ask for an extension, and people who owe taxes for the year, along with just your overall procrastinators often wait until then. But people who know they’re due a refund are often interested in the first day the IRS will start accepting returns, which is tax people’s opening day, and you often do see a big spike in filings around that time because people want their money. Well, this year, opening day isn’t until February 12th, 2021. That’s 16 days later than last year.

David Muhlbaum: February 12th? Okay, so that’s when, but why?

Sandy Block: The IRS says it needs time to do additional programming and testing of their systems because of the December tax law changes that set up a second round of stimulus checks. Congress has been throwing them a lot of work.

David Muhlbaum: Oh, okay, so perversely, we can blame the second stimulus: “Here’s your $600, but, well, we’re going to be a bit late giving back the money you already paid us through withholding.”

Sandy Block: Well, we’ve gone on at length here about tweaking withholding so you don’t have a huge refund and this year is a good example of why you should do that. This isn’t the first time that there’s been a delay, in my experience writing about taxes. There’s just no good reason to give the government an interest-free loan, especially if you might have to wait longer for it.

David Muhlbaum: Yeah, of course, but tweaking withholding has gotten harder in the past year to the point that we had to retire our popular tax-withholding calculator.

Sandy Block: Yeah. That was sad for us, but taxpayers can still use the IRS tax-withholding estimator and we’ll pop in the link for that.

David Muhlbaum: The 2020 tax-filing year is going to be complicated in a number of new ways, too, right? This week we’re posting the annual It’s Not Too Late to Save on 2020 Taxes guide to the website. Sandy, that’s yours, as always, so give us a couple of the biggest 2020 issues.

Sandy Block: Well, a lot of people claimed unemployment benefits for the first time last year and may not realize that those benefits are taxable, so that’s going to be an unpleasant surprise. The coronavirus stimulus bill made it easier to take hardship withdrawals from your retirement plans, but again, those withdrawals could be taxable or you may have to figure out a way to spread out taxes on them, but that’s something people are going to deal with, and people who moved around because of the pandemic and maybe crossed state lines may have to file tax returns in more than one state and they might even have to pay taxes in more than one state.

David Muhlbaum: Yeah. Yeah, we are going to get to that in considerable detail coming up in our main segment. It’s going to get messy. We can still consider this the launch, the beginning of tax season. In one way, it’s the beginning of when we start talking about tax season and popping up links to the content that we have to help you through tax season, starting, of course, with Sandy’s piece on It’s Not Too Late to Save on 2020 Taxes.

David Muhlbaum: Welcome back to Your Money’s Worth. Joining us today is contributing editor Lisa Gerstner, who has written an article about a popular phenomenon of the past year, changing the place you work from. If that sounds a bit vague, that’s because I meant it to be, because we’re trying to capture a range of post-pandemic behavior. When COVID-19 hit, many people who could work remotely started doing so, maybe at home, maybe at someone else’s home, their parents, maybe in a vacation home, it varies, and so does the experience. Some people think it’s great, others less so, but beyond that, there are personal finance implications, particularly when it comes to state taxes. Lisa’s going to take us through how to deal with these. Welcome, Lisa.

Lisa Gerstner: Thanks for having me.

David Muhlbaum: I think we should start by noting that not everyone has the ability to work from home, but it’s been kind of fascinating to see how many fields have adapted. I mean, courts have figured out remote proceedings, I have a judge friend who Zooms in from home, so I thought we might check in on our personal situations. I’m sitting in the same house I’ve been living in since this started, the pandemic, in Maryland, and other than a couple of one-week rentals up in New England, that’s it. How about you, Sandy and Lisa? Any redefinitions of home in the past year?

Sandy Block: Yeah, this is Sandy, and we have had a weekend house in West Virginia for over 20 years. When the pandemic started, we finally got internet, which means we can actually start working from here, and as we’ll discuss, I should probably start keeping track of the number of days that I actually work from West Virginia. Work is a little sketchy because our internet is just about one step up from AOL dial-up, but that’s what I’ve been doing since the pandemic. How about you, Lisa?

Lisa Gerstner: Yeah, so over here we bought a new house last fall, so we didn’t move, but nothing that would really affect my tax situation. I’m still in the same state, same area. I have a two-year-old at home, so I don’t get out a whole lot, otherwise. It’s too hard to figure out working and childcare and trying to move around, so we’re pretty boring here, otherwise. We just stay at our house.

David Muhlbaum: So, I’m the only one of us who lived somewhere else and I would say “lived,” I mean, I saw that as, I rented a house a couple of weeks.

Sandy Block: Did you work while you were in this house, David?

David Muhlbaum: Yeah, some days I worked, some days I paddled.

Lisa Gerstner: Okay. Well, I won’t ask what state that was in for a number of reasons, but I will say that there are some states where technically you’re going to owe state income tax after working even just as little as one day.

David Muhlbaum: What? Is this like the jock tax? I mean, I don’t make NFL money.

Sandy Block: No, you sure don’t, but actually, that’s exactly it, you’re an itinerant worker. The reality, of course, is that states with this kind of tax structure have only bothered to apply it to athletes because they make lots of money and it’s public knowledge how much they make and where they make it.

Lisa Gerstner: Yeah, but people who have moved to a new state and are working there for a significant amount of time, at least, are going to be looking at the prospect of having to file a tax return in that state, and so it’s significant. It’s going to be between you and your tax adviser and it’s really going to vary a lot by state. States have different rules. Some states, it’s a day, some states, it’s 30 days, but that’s something you need to be thinking about if you are going to be working from another state for any amount of time.

Sandy Block: That’s right. Before people start panicking, most states will credit you for the amount of tax that you might’ve owed at another state, but it gets complicated if you live in a state where there’s what’s called a “convenience rule.” Seven states, Arkansas, Connecticut, Delaware, and Nebraska, Massachusetts, New York, and Pennsylvania say that individuals... I’m reading that, I didn’t know that off the top of my head, say that “Individuals may be taxed by the state where their office is located, even if they don’t live or work in that state, if they telework for reasons of their own convenience rather than because of employer requirements.”

Sandy Block: So far, these states haven’t issued guidance as to how these rules will apply to workers who work remotely during the pandemic, and a lot of people would say that was not convenient, that was required because their office is closed. New Hampshire has asked the Supreme Court to prevent Massachusetts from taxing people who have offices in Massachusetts, but have been working from home in New Hampshire, which has no income tax. I think we’re going to see more of this, because as The Kiplinger Letter has reported and we have reported, states are having a lot of revenue issues because of the pandemic. They’re going to be looking for taxes wherever they can find them.

David Muhlbaum: Yeah, but it also raises the question how the individual might game it, or maybe a better way of putting it, is be affected by it. I mean, for example, New Hampshire, right, if I go to New Hampshire, I don’t have to worry about the income tax because there isn’t one, but my home state would still want to tax me for the time I was there, or do I get a reprieve from paying my home state during the time I was there?

Sandy Block: What would get you in trouble, David, is deciding that New Hampshire is your state of residence. If you spend part of the year in New Hampshire, part of the year in Maryland or Massachusetts or wherever and you decide that, “Well, New Hampshire has no income tax, so that’s where I’m going to say that I live.” States get very interested in people who claim a residency in another state that has lower income taxes and we see this all the time with snowbirds. You would need to prove that you actually have decided to make New Hampshire your residence, and that means registered to vote, get a new driver’s license there. You can’t just relocate there for a little while and say, “Yes, I live in the Granite State now and I no longer have to pay anybody any state taxes.”

David Muhlbaum: Right, but inverse of that, that makes sense, now I remember the whole snowbird thing, but the inverse of that is let’s say I was previously in New Hampshire and spent two weeks, a month, three months at a house on the eastern shore of Maryland, of the Chesapeake Bay in Maryland, which is, as we’ve known and discussed and experienced, a fairly high tax state, so now Maryland is going to want to tax me for the time that I was here working for a company back in New Hampshire. That’s the scenario people are looking at, right?

Sandy Block: Well, and that’s why really a lot of people are going to need to get professional help this year because every state has different rules. As we said in the beginning, even working for one day in some states might require you to pay taxes, but there are a lot of reciprocal agreements, a lot of states give credits to each other, so it’s hard to make a blanket statement about how it’s going to work because it’s really going to depend on what states you lived and worked in.

David Muhlbaum: Phew. Okay, got it. Well, what about people who have packed up and headed for another country altogether? Maybe they have a spouse or a family connection that lets them go somewhere with less COVID? What are they now facing in terms of federal and state taxes? I’m bringing this up in part because we have a story on the website, which I will link to in the show notes, about countries that are actually welcoming Americans to come there and work remotely.

Lisa Gerstner: This gets a little easier, at least in terms of your federal taxes. For my story, I spoke to an accountant who specializes in tax services for expatriates, and she said unless you stay overseas for an extended period, typically, that’s going to be about a year or more, how you pay taxes to the US isn’t likely going to change. Now, if you do stay for a longer stretch abroad, you may qualify to exclude your foreign earnings up to a certain amount, last year, that was about a little over $107,000, from US taxation, and that can even include income that you earned from a US employer while you were working abroad, so with a lot of people who are working remotely for their regular company in the US, if you’re doing it for a long time, that might actually help you out.

Lisa Gerstner: Then the other situation is if you start to establish temporary or permanent residency in another country, that country may tax you, and then you’re looking at paying taxes, both to the US and to that country potentially, but there are also tax credits for that that can help ease the burden on you in that case. I think most people, this probably isn’t going to apply. I think a lot of people who are thinking about doing this, it’s just going to be for a couple of months and you’re probably not going to have to worry about it.

David Muhlbaum: What about state income taxes when you’re abroad? Do you even have to pay them if you’re not in a state?

Lisa Gerstner: Yeah. I think if you’re in a situation where you’re in another country just for a few months, it’s just a temporary thing where you’re visiting for a little while to work, you’re probably going to still owe your state tax the same way you would before. I don’t think they would most likely grant you a lot of leniency. Now, if you’re establishing residency in another country, that’s another story, the rules get a little more complicated. Maybe you don’t owe those taxes. But again, if you’re in that situation where you’re in so deep into this tax situation in another country, you want to hire some good accountants to help you out.

David Muhlbaum: Got it. Lisa, I wanted to come back to some of the other concerns that face people who change states. Beyond taxes, what are the other big things you need to keep in mind, or you may have suddenly realized you should have kept in mind after having moved?

Lisa Gerstner: Yeah, so I think the other big topic to cover here is insurance, a few varieties, but especially health insurance, that can be, of course, a really big expense and a really big consideration for most people, so I think an important thing to know is that assuming you have a regular comprehensive insurance plan, it has to provide the same coverage for emergency room care regardless of where you are in the US, so if you have a 20% co-insurance payment at your local hospital to go to the emergency room, when you’re at home, it should be the same thing if you’re on the other side of the country. That’s important to know: If you need emergency care, you should be okay within the US.

Lisa Gerstner: Routine care is another story. If you want to see a specialist or your primary care doctor, it really depends on the type of plan you have. If it’s a preferred provider organization or a PPO plan with a big employer, you might have nationwide access. It really just depends on the plan, but there is a possibility there that you could be in a completely different state in a different part of the country and still have access to in-network here, so if you want to see, again, it’s like a specialist or someone like that while you’re somewhere else, you may be able to pay the same rate, which is great. The other nice thing about a PPO is even if you need to get out of network here, it usually covers it to some degree. It’s not going to be as strong as your in-network coverage, but it’s there, so that’s nice.

David Muhlbaum: What if you are a digital nomad, so to speak, and you have arranged your insurance through your state exchange? It doesn’t matter until the next open enrollment?

Lisa Gerstner: Yeah, so I mean, if you’re on a state plan, or if you’re on a plan through those exchanges, it’s going to be the same. You’re going to have coverage for the year, and then when open enrollment comes around, you can pick a new plan or however that works. But I think one important thing to know is if you are in one of those exchange plans, those are almost always like a health maintenance organization type plan or an HMO, and in that case, you’re not going to get that nationwide coverage, most likely. You’re probably going to be limited to your local area, so that can be difficult if you do need routine care in a different part of the country or in a different state. Just something to keep in mind with the type of plan you’re on.

Lisa Gerstner: Now, I will say a great option that has become really prominent because of the pandemic is telehealth, so that’s where you can use FaceTime even, or something like that, a video chat, depending on the rules and what your doctor allows to consult with your doctor, so even if you have a PPO or a plan where you could get care somewhere else, a lot of people want to have continuity, you want to keep using the same doctor that you’ve been using. For things like mental health or getting a prescription for your allergies or something like that, that can be a great option to be far away and still get the care you need from your doctor. Something to keep in mind there. You may even pay the same amount that you would through your insurance that you pay to actually visit that office.

David Muhlbaum: Right. Another thing that often I associate with states since it’s regulated by states and is also insurance is car insurance. What needs to be considered there?

Lisa Gerstner: Yeah. Well, one nice thing here is that if you’re not using your car to commute very much, maybe you drove your car to your vacation home, and then you stayed there and you never left for a few weeks, that may mean less mileage on your car in a year and that could qualify you for a discount. That might just be a basic low-mileage discount that could save you up to 20%, or you might even want to switch programs. Some insurers, I think Allstate has one nationwide, has a, excuse me, a pay-per-mile program, so in that case, you pay a base rate and then you pay a few cents for every mile that you drive.

David Muhlbaum: Yes, I’ve been very tempted by the pay-per-mile thing, but we’ve looked into it and maybe now that we’re driving so many fewer miles, it might break for us, but you know what? The fundamental concern is that it’s going to turn me into a “every mile-you-drive-costs-us” monster. I mean, it’s bad enough having the fights over the thermostat and whatnot, but it’s just...

Lisa Gerstner: It’s a little more granular.

David Muhlbaum: Yeah. Well, I appreciate all your insights very much. It’s going to be a complicated tax-filing year ahead of us and even more complicated for people who have become digital nomads, whether by choice or not. Thanks for your insights. Safe travels.

Lisa Gerstner: Thanks for having me today.

David Muhlbaum: We’re going to come back to a topic that we’ve visited a number of times over the past few months, and that is student loans, student debt, and the moratorium on paying it. It’s moved again, Sandy, what’s the latest?

Sandy Block: The latest is that President Joe Biden had barely been inaugurated when he directed the Education Department to extend the moratorium or pause on federal student loan payments through September 30th. It was scheduled to expire on January 31st, so that means borrowers now can wait and there’s no penalty for this, the interest doesn’t accrue. There’s no penalty. They still get credit for payments if they’re trying to earn towards forgiveness. They have until September 30th now to start making payments again.

David Muhlbaum: Okay, so another reprieve. We’ve had a few. You think this is the last one?

Sandy Block: I don’t know. That’s a good question. I think it will depend on the state of the economy. I mean, the whole reason for this original moratorium, which dates all the way back, it’s almost a year old now, is a recognition that many young people who have student loans are having a hard time making payments on them because they’ve either lost their jobs or had their hours cut or their pay cut, so this was one of the many things that Congress decided to do to provide some relief to people and it just keeps being extended because obviously the problem that led to the moratorium has not gone away. I think the other issue is that it gives this Congress, or this president is interested in actually taking a much farther step and forgiving some loan balances, and I assume this gives Congress and the president time to see if they can make that happen.

David Muhlbaum: Yeah, so that’s going to bring us to actually discussing dollar values of what might be forgiven. Biden put out, well, a whole lot of proposed legislation and changes. Did he put a dollar value on what he’s looking for?

Sandy Block: The one that’s been most talked up is you hear the most about is $10,000, forgiving $10,000 for all federal student loans. I’ve seen people propose that they should forgive all student loans. I mean, it’s kind of all over the place. I have to say that this is a very controversial idea because if you say, “We’re going to forgive $10,000 of all student loan balances,” that is going to affect some people who really, maybe that’s their entire loan, and it might affect some well-off law graduate who has $50,000 in student loans.

David Muhlbaum: For whom that’s no problem.

Sandy Block: For whom that’s no problem, that’s right. Do you make it income-based? How do you do that? Then there’s just a whole philosophical argument about these people took out these loans, they should be responsible for them, and why do they get them written off? I mean, I don’t know if you took out student loans, but I know a lot of people who have paid off their student loans would be pretty annoyed to see this new group get forgiveness when they never did.

David Muhlbaum: Right. Fairness questions up and down. I guess we’ll be hearing more about them in the months to come. This may be the third time that you and I have talked about student loans. I’m sure it won’t be the last. Thanks, Sandy.

Sandy Block: Thank you.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and review. If you’ve already subscribed, thank you. Please add a rating or review if you haven’t already. I keep harping on that because those ratings and reviews are a key metric that help other people learn about the podcast, virtuous cycle, all that. To see the links we’ve mentioned on our show, along with more great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. If you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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Links and resources mentioned in this episode:

When Can You File Your Taxes This Year?

There’s Still Time to Save on 2020 Taxes

IRS Withholding Estimator

Work From Home, Wherever That Is

7 Foreign Countries Luring Americans to Work Abroad During the Pandemic