A common aspect of the COVID-19 pandemic over the past two or so years has been more employees working remotely, but that doesn’t necessarily mean all those people were working from their homes.
Whether it’s been employees from the north who have migrated to residences in the south during the winter, or people choosing to work remotely from what are normally vacation homes, many have taken the opportunity to work remotely in a separate state from where they reside.
More than ever due to the pandemic, that is leading to some tax complexities.
Workers who decided to set up shop in another state could end up paying more in taxes to multiple states, according to CNBC.
Each state has its own set of laws and rules in terms of remote workers filing taxes.
Some states allow nonresidents to work there for 30 days without a requirement for withholding.
But there are 23 states that don’t allow any work days from nonresidents and start billing from the first day, so to speak.
Other states tax based on wages earned, while others simply don’t have an income tax.
But there can be exceptions.
Depending on what laws in various states are, there could be tax liabilities in another state if that’s the location of a company.
It’s up to the taxpayer to determine which states they do, or could potentially, owe taxes to.
Another note is that unlike freelancers or independent contractors, employees who receive a paycheck or federal W-2 form from one employer are not eligible for home office deductions, according to the Tax Cuts and Jobs Act of 2017.
Being transparent is essential
Of course, this leads to some believing that the best course of action is to simply not tell their new state that they have been working and making money there for a few months.
However, this isn’t as easy as it sounds.
If your employer knows where you are working, they could send tax forms in that temporary state.
In addition, taxpayers can be audited for documents such as cellphone records, credit card bills and utilities.
So, what are the best solutions to avoid such tax headaches if you’ve been working remotely in another state for a temporary period of time?
First of all, be upfront with your employer.
Keep track of the time spent in a particular location, especially since cities and counties can hand down taxes as well -- and let your employer know.
Maintaining accurate records, communication and transparency is vital.
It’s also a good idea to get a tax professional who knows laws in various states and can help navigate you through any issues that might come up.
Is Congress trying to do something to address the situation?
Last year, a bill entitled the “Remote and Mobile Worker Relief Act of 2021″ was introduced, which would not let states tax or require withholding on non-residential employees who work in a state for less than 30 days. For 2020 and 2021, the requirement is extended for 90 days.
It hasn’t been officially passed yet.
This story was first published in 2021. It has since been updated.