An interesting thing happened in Hollywood during the pandemic. Many stars moved out of Los Angeles and migrated to states like Texas (such as radio personality Joe Rogan and the former Dawson’s Creek star James Van der Beek). In news stories, they usually stated it was to get away from the rat race and general craziness of L.A. (“To get back to basics,” they declared publicly. “To return to a simpler way of life. You know, to be with real people for a change.”)
But there may have been another, more prosaic reason for their move: states like Florida, Nevada, Tennessee, and Texas don’t impose income tax, compared to California’s 13.3% income tax rate.
Yes, entertainers are different from you and me, but maybe not for the reasons you think: they can have more complex tax problems, especially when they work in more than one state. By necessity, many entertainment professionals, such as touring musicians, actors, TV anchors, athletes, and film crew members, have to work in many states and cities around the United States—and that means they have to pay a slew of state and local taxes (in addition to federal taxes). That entails filing non-resident tax returns, reporting income to each state, and paying taxes.
The Challenge of Out-of-State Taxes: Keep Records!
Usually, we owe taxes in our home state, where we spend most of our time; it’s where we own our home, register our car, or vote. If you also work in another state and have to pay its taxes, some states allow workers to avoid double taxation via reciprocal agreements. But there’s a catch. Let’s say you’re from New York but moved to Florida to escape taxes; yet you spend the majority of your time still in New York. Unfortunately, the tax man can easily catch you out by examining your credit card purchases. (Did you know that the IRS has its own Entertainment Audit Technique Guide?)
That’s why it’s crucial to keep records of all your out-of-state work if you’re a mobile entertainer; make a note of the number of days you spent in each state and municipality. You may also want to consider checking the “single” box on your employer’s tax form when you start a new job, even if you’re married; this will prevent additional taxes from being withheld from your paycheck.
And it gets more complicated. If you worked in the same state last year, you can avoid tax penalties by checking your previous tax return. If you withhold or make estimated tax payments equal to 100% of last year’s net income tax, you won’t trigger penalties. But what if you never worked in that state before? Then you have to download a blank tax return from the state’s website and try to estimate your taxes, based on your projected earnings for the year.
And inter-state taxes can be knotty. If you’re a member of a California-based crew and you have to relocate to Georgia for a new shoot, you must withhold Georgia taxes and file a non-resident return. But you’ll get a credit for the taxes paid on your California return. In this case, working out of state doesn’t damage your tax situation, because Georgia’s tax rate is lower.
Yet if you’re a member of a Georgia-based crew who must move to California for a production, you may end up with a bigger tax bill, because you can’t claim a full credit for higher California taxes paid on your Georgia return.
Let’s Not Forget City Taxes
Now you can see why it can be helpful to consult a tax professional in these matters. The complexity increases if we turn our attention to city taxes. According to the Tax Foundation, almost 5,000 jurisdictions impose local taxes across the U.S., with many in Ohio and Pennsylvania. Several major cities have mandated local taxes, such as Detroit, New York, Philadelphia, San Francisco, and St. Louis. For instance, Philadelphia currently charges a 3.4481% wage tax for non-residents. And although many states have arranged it so taxpayers don’t get hit by double taxes, the same doesn’t apply to inter-city taxes.
