With all the complications this year has brought, your tax situation as a telecommuter may not make it to your Top Ten list—but it certainly should, especially if you worked remotely in a state, city, or municipality different from your office at any time this year.
Covid-19 has converted more employees into telecommuters than ever before. With so many “newbies” to the work from home world, there is a learning curve in nearly every respect; whether it is setting up a workstation in a quiet space of your home (I have one colleague who even takes his Zoom calls in a converted walk-in closet to stay out of earshot of his curious toddlers), finding the perfect office chair, or re-creating a morning routine from scratch. And with nearly a year of telecommuting under our belts, most Americans may (and should!) feel a sense of pride about their ability to pivot and get the job done. However, those who are now working remotely in a location different from their office may have one more hurdle to clear: state (and local) tax conundrums.
Each state has its own tax rules and quirks; some states even have rules for out-of-staters who are only working there for one day. Others have issued special rulings that will not tax people working remotely due to Covid-19; however, a portion of these very same states are not extending this special ruling to people working out of state due to the pandemic.
So, if you’ve been a telecommuter in a different state or city for at least a portion of this year, where should you start?
- Track where you’ve been. If you’ve worked remotely in several places this year, take stock of how many days you’ve spent where (or do your best to approximate).
- Do your homework. Some bordering states have agreements with one another to prevent double-taxation of employees. Other states may offer credits to reduce or even prevent said double taxation. Take note of the tax laws for each state in which you’ve stayed—but don’t stop there; cities, counties and municipalities may also have their own rules.
- Talk to a tax professional. If you usually file your own taxes and find yourself entangled in inter-state tax issues for the first time, it may be wise to work with a Licensed CPA as soon as possible, especially if you’ve earned a large bonus, received vested stock options, or recognized other ordinary income subject to a tangle of income taxes.
The Harris Poll for the American Institute of CPAs surveyed over 2,000 adults across the US, 840 of which worked remotely during Covid at some point this year. Of these telecommuters, 55% were not aware that working remotely could have an adverse impact on their state tax liability. If you’re in the same camp as this 55%, be sure to consult a tax professional as soon as possible so that you are not blindsided come April 15th (we already had enough unpleasant surprises last Spring!).
“I believe in fostering a relationship with your personal finances. Once you begin to understand what deeply matters to you, the way you put your dollars to use becomes an expression of those values. When you can orient yourself to view your spending as a reflection of who you are, you’re able to exercise control over how your money moves; there is great power in that.”