Tax surprises -- the one sure thing you can count on 2021 bringing.

Some of us will find ourselves owing the IRS when we didn’t expect to. Others of us, like small business owners, will think Christmas came early this year.

Moving blues

Those who pulled up stakes to flee the coronavirus outbreak will be the most surprised. Residency rules bite.

And states and cities facing big pandemic-induced budget shortfalls – added COVID-related operating costs and slashed revenues because of lockdowns – will be aggressive in getting every red cent from taxpayers. Don’t think just because you moved that you don’t owe them.

California is notorious for its taxing tenacity: There are no hard rules for ending residency, and taxability, in the Golden State.

“Once you enter California’s tax regime, you’re always in California,” Jon Feldhammer, a tax attorney at law firm Baker Botts, told International Business Times.

If a resident headed to Nevada or Washington state or Oregon, California still sees the worker’s paycheck – and bonuses and stock awards, too -- as taxable income.

“States that are really suffering are going to try to go after anything they can,” said Kathy Buchs, a director in the client tax group at MAI Capital in Cleveland. “The state taxation is the most concerning because it can be so different depending on where you live.”

In Ohio, for example, workers don’t even have to move out of state to feel the pain. All they have to do is stop commuting to another city and clock in from home.

“Historically, you could file for a refund if you didn’t work within the city borders,” she said. “A lot of people were thinking, ‘I’m not working in that city anymore so I should be able to file for a refund.’”

Their thinking is wrong. Ohio nixed the refund “because it would bankrupt the cities that relied on the taxes,” Buchs told IBT.

Withholding hangover

Another unpleasant surprise: Unemployment compensation is taxable by the federal government and the states.

But tens of millions of the jobless probably didn’t opt for voluntary withholding or put anything aside for taxes.

The same holds true for those of us who picked up jobs here and there, like driving for Uber, to make ends meet, tax expert Rochelle Hodes told IBT. They might have to pony up a pretty penny to both the IRS and their states.

Then there’s the deferred payroll tax option that the IRS offered. But deferral isn’t elimination. The choice only puts things off through this year, said Hodes, principal in the Washington national tax office at Crowe LLP.

“But come the end of 2021,” she told IBT, “these people are going to have to come up with a bunch of dollars to pay for the payroll taxes they didn’t pay in 2020.”

Plus, if you earn a lot, Hodes warned, “the IRS said it’s increasing their examination of those types of taxpayers.”

Bits of good news

If you’re out of work or making less than you used to, you might qualify for the Earned Income Tax Credit, which can significantly reduce taxes. Buchs suggests you check even if you didn’t qualify in the past, but chances are you just might now.

A lower income on your 2020 return also might mean that those of us who didn’t qualify for the stimulus checks will now.

Finally, don’t forget about the charity deduction.

“Many taxpayers can reduce their income by up to $300 for cash contributions to charity, even if they do not itemize,” tax expert Morris Armstrong, owner of Morris Armstrong EA in Cheshire, Connecticut, told IBT.

The real winners, though, are small businesses that took part in the Paycheck Protection Program—forgivable loans that let companies keep cutting checks to their workers and paying benefits. They get three big bonuses.

First, under new rules from Congress, forgiven loans don’t get taxed. It’s free money.

Second, the expenses paid for by those now-free-money loans can still be deducted.

And third, the so-called employee retention credit, which was for businesses that kept workers on during the pandemic, used to be off limits for PPP loan recipients. Now, companies can use it and drive their taxes down even further.

But there may be even more changes forthcoming as President-elect Biden pushes Congress for more relief aid. As the House and Senate consider action, that could well mean even more surprises going forward.

“I understand that it’s a big problem we’re trying to solve,” said Brian Thompson of Brian Thompson Financial. “We’ll figure it out. It’s just going to be a bumpy ride.”

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