The COVID-19 pandemic turned remote work into a requirement almost overnight. Now, working from home may continue to be part of the norm. If you transitioned to remote work either temporarily or more permanently, this move could affect your taxes.
It’s crucial to understand your state’s tax implications for your remote work. You wouldn’t want to owe penalties for not filing taxes or even end up going to jail for unpaid taxes.
If you work in the state where you reside and file your taxes, working remotely may have no tax implications. However, telecommuting involving a different state than where you worked previously could result in new tax consequences.
While your federal taxes won’t be altered, you could have additional state taxes. The state taxes owed will depend on the respective locations of your remote office and your employer’s base of operations.
Several states have specifically indicated that an employee’s remote home could still be treated as an office location, requiring the employer to pay tax in that state. Similarly, an employee working from home could be required to pay the income tax in the state they’re remotely located.
Most states can claim the right to tax an individual’s income if the state believes the person to be a resident of that state. For most states and localities, crossing the threshold to determine residency qualifies the state to tax your income. While the extent of taxation depends on the state’s tax rules, double taxation is possible. Even if the states provided credits, an employee would have to shoulder the double tax burden until the tax returns are filed.
While some states allow people working remotely to be taxed in the state where their job is located, this may change soon. New Hampshire, for example, filed suit in the Supreme Court over Massachusetts continuing to tax people working remotely in New Hampshire.
Changing Your Residency to a Different State
If you work remotely, you may have considered changing your state of residency. Generally, states don’t regard you as a permanent resident unless you meet certain conditions. If you work remotely in a state that’s different from your home state, be sure to check with your employer on withholding issues. Consider seeking professional help from a CPA or financial planning professional because state tax issues can get tricky.
If you use your home office regularly and exclusively for business purposes, you may be able to deduct a portion of your home-related expenses from your tax liability.
As experienced accountants near Elmhurst, IL, we can help you address remote working tax implications. Contact us today for a free consultation to discuss how we can help you with your taxes and other financial decisions. We specialize in providing accounting and tax services to small to medium-sized businesses and individuals.