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If you are one of those workers who want to continue working remotely, you may want to assess your tax situation for 2021.
While many states offered a pandemic postponement that generally did not result in tax filing for remote workers temporarily working in their state, the leniency program for return was in 2020. And when the nation emerges from the pandemic, that compliance hiatus will be removed .
“As the emergency ordinances are lifted, the guidelines will change,” said Eileen Sherr, director of tax policy and advocacy at the American Institute of CPAs. “Some states are now abolishing it.”
Many workers started doing their jobs remotely more than a year ago when companies sent their employees home en masse due to the pandemic. According to a study by the Stanford Institute for Economic Policy Research, an estimated 42% of the workforce was teleworking as of June 2020.
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Of those who were still doing their work remotely in late 2020, around 30% said they worked in a different state than the one they lived in before the pandemic, according to a survey conducted by Harris Poll on behalf of the American Institute had worked from CPAs. Most respondents (72%) were either “very” or “not at all” familiar with their state’s tax requirements for remote working.
It can be complicated. Different states have different approaches to expecting you to report income there, and the rules don’t necessarily mean you will pay more taxes overall as most states offer a tax credit to eliminate double taxation (although it doesn’t) . Always the case).
“The # 1 concept for a teleworker is that any state you are based in can tax your wages regardless of where you earned them,” said CPA Michael Bannasch, director of state and local tax practice at RKL, an auditing and consulting company.
However, you could be taxable in another state if you earn money, work or have your company headquarters there, depending on the state.
For example, some states allow non-residents to work there for more than 30 days without withholding tax, including Arizona and Hawaii, which you can be there for up to 60 days.
Other states’ thresholds are kicking in faster, including 23 that you want to risk on the first day. And still other states have a wage-related tax limit, while nine states have no income tax at all.
Some states have reciprocal agreements. In principle, if your state of residence has this pact with the state you work in, you don’t have to pay in both jurisdictions. For example, if you live in Maryland but work in the District of Columbia, all you need to worry about is Maryland withheld taxes.
Meanwhile, there are also a handful of states – Connecticut, Delaware, Nebraska, New York, and Pennsylvania – that require an “employer amenity test” for teleworkers. If your business is based in one of these states, you will typically pay tax there, unless your remote location is because your employer needs you to relocate.
Since an employer can be penalized by a state for not holding back when it should have done so, the employer has an incentive to issue guidelines to know where its employees work.
State and municipal tax practice manager at RKL
“In these states when your reason for work [remotely] not because your company requires you to pay tax to the state where the employer is located, “Sherr said.
For teleworkers, all of these different rules mean that it is important to know the state laws that affect you. Withholding your paycheck is generally a shared responsibility between you and your company, Bannasch said.
“Since an employer can be punished by a state if it does not hold back when it should have done so, the employer has an incentive to issue guidelines to know where its employees work,” said Bannasch. “But of course these guidelines are only as good as the compliance level of the employees.”
Even if you are an independent contractor for your company – you do not receive a W-2, but rather a Form 1099, for example – you are considered a self-employed person and are taxed as such.
This means that it is your responsibility to find out which states you owe taxes based on where you live and where you made the money. However, the calculation is not based specifically on time spent in different states, but rather on a combination of the amount earned in those states plus a few other factors (such as whether you have employees who work for you and your revenue). ).
There is a possibility that taxation on teleworkers could at some point change given the growth of the country’s mobile workforce. A bipartisan Senate bill, the Remote and Mobile Worker Relief Act of 2021, would not allow states to tax or withhold non-resident workers who stay in a state for less than 30 days (for this year it would be 90 days ). ). A similar measure is pending in the house.
Another Senate bill (with a relative in the House of Representatives) would restrict states’ ability to impose the “employer convenience rule” on non-residents. In addition, some states are changing their rules – how long a person can work there tax-free – to be more accommodating to teleworkers.