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How to Handle 2021 Taxes as a Remote Worker

These desk audits were coming a week or so after the tax return was being filed. I saw one where a taxpayer reported $10,000 of income and got one of these notices and some who reported $10 million of income and got one of these notices. New York did something pretty remarkable or unusual last year and it continues. Lots of taxpayers who filed their taxes in April how do taxes work for remote jobs or May of 2021 for the 2020 tax year or in October of 2021 for the 2020 tax year, they got an audit notice right away. A number of states said, «You know what, if you’re physically working in our state, well, that’s a work day in our state. We don’t care that you’re working remotely for your employer who might be in New York or Connecticut or California.»

UN Panel’s Plan to Tax Remote Workers Too Complex, Members Say – Bloomberg Tax

UN Panel’s Plan to Tax Remote Workers Too Complex, Members Say.

Posted: Thu, 19 Oct 2023 07:00:00 GMT [source]

There was a time when most people worked from only one worksite, and where travel was often limited and brief. That time had long passed even before the pandemic, but it seems particularly outmoded now. States are slowly catching up to this reality, with Illinois enacting a 30-day threshold in 2019,[3] Kansas considering (but ultimately not adopting) one in 2020, and Louisiana[4] and West Virginia[5] adopting 25- and 30-day thresholds in 2021. The remaining states should establish realistic filing, withholding, and payment thresholds that do not impose outsized burdens on those briefly passing through. (c) While New York has a 14-day withholding threshold, taxpayers must file after the first day in the state.

Commonly Overlooked Tax Deductions and Credits

Several states and localities provide tax credits for employees working on premises. During the pandemic, many such jurisdictions waived such onsite work requirements. As a result, employers will need to track their workforce to determine whether they are still eligible for and properly claiming such credits, including in connection with any remote work policies. However, some states don’t require organizations to report taxable employee benefits they offer to their remote workers, which is why you must check state tax laws for each remote worker you hire.

  • So if you worked in a state other than your usual one in 2020, here are some tips on dealing with the tax season.
  • One of the most appealing aspects of remote positions is working anywhere you’d like, as long as there’s reliable Wi-Fi.
  • There was a time when most people worked from only one worksite, and where travel was often limited and brief.
  • By nature and experience, state and local tax professionals are already very adept at addressing the complexity that comes with juggling multiple jurisdictions and tax types, constant changes and developments, and the uncertainty that comes from a lack of authoritative guidance.
  • Consequently, your employer is responsible for reporting your income and withholding unemployment or social security tax to the state where you live.
  • You can also pay taxes in the country where your company is based and file a Canadian tax return to claim a foreign tax credit.

The tax situation becomes more complex when state lines are crossed, and an individual is working in a different state than in which he or she reside and pay taxes. In these situations, it is possible that the employee is creating “nexus” or a connection for the employer to a different state, meaning the employer could now have a tax presence and resulting exposure in that particular state. This physical location could cause tax implications for the employer, such as nexus issues and additional withholding requirements, as well as potential state income tax implications for the employee. The intersection of tax withholding, remote work, and local tax rules can be seen in the dispute between Massachusetts and New Hampshire in 2020 over nonresident taxation. Massachusetts issued guidance stating that income earned by nonresidents who had worked in Massachusetts before the COVID-19 emergency declaration, but were now telecommuting from another state, would be treated as Massachusetts-source income subject to state taxes. This meant that New Hampshire residents who performed their work entirely in New Hampshire, instead of commuting to Massachusetts, would still have Massachusetts taxes withheld.

You may not be able to deduct home office expenses

That caused lots of challenges for employers and employees and led to a lot of the old controversy. This ended up getting fixed by Connecticut in 2019, but it still could have come up in a lot of states. The genesis originally was really one around tax avoidance or curbing tax avoidance. States like New York didn’t want taxpayers who lived in a border state like New Jersey or Connecticut to get some sort of tax benefit by simply not going to work. This deadline gives remote workers plenty of time to get their necessary paperwork gathered, consult the help of a professional, and prepare to file their return correctly.

In addition to the constitutional issues that we saw come up in Huckaby and Zelinsky, these other administrative cases really made it difficult on the legal issue for taxpayers to win. New York was taking a real broad interpretation of the rules and they were winning. Timothy Noonan of Hodgson Russ LLP discusses how some states tax remote employees and the effect of temporary pandemic tax changes. As you look beyond the pandemic, Deloitte can show how the tax function can play a bigger role to help protect and create value for your business.

Digital nomads should seek help from a tax professional

You simply withhold state and federal personal income taxes, if applicable in your area, and pay any required payroll taxes, like FUTA. Currently, W-2 employees can’t deduct home office expenses, but independent contractors or anyone who is self-employed can deduct the costs of having a dedicated workspace at home. Taxes can be confusing and working remotely has the potential to add one more complication to the mix. So if you’re not quite sure how to handle your taxes this year, you may be able to save money and have greater peace of mind if you work with a tax professional. The 2017 Tax Cuts and Jobs Act suspended the home office deduction through 2025 for employees who «receive a paycheck or a W-2 exclusively from an employer,» according to the IRS. If you receive a Federal W-2 form from your employer then it doesn’t matter if you work from home 100% of the time, 50% of the time or not at all – you can’t deduct work expenses to reduce your taxable income.

taxing remote workers

If you have a telecommuting employee in a different state than your office location or have employees in multiple states, you must withhold income taxes for the state they live and work in. You’ll pay unemployment taxes and report their income to the states where they live, not your state. In this case, you and your employee could be subject to tax liabilities in both states. Reciprocal agreements—or a compromise between states that allows nonresident workers to request tax exemption from the other state—exist in some places to prevent double taxation, but only some states have one. In these situations, the employee’s resident state may issue a tax credit for any income paid to your organization’s state.

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Alvaro Galindo

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