Last year, Ariel Doolittle, a tax attorney, called a client who lived and worked in New York but was considering moving away from California temporarily after his offices closed due to the epidemic.
“It’s not a good idea,” Doolittle told him.
California, he said, would tax its income because he worked there physically. And New York would probably pay for it, too. Also, when he filed his New York City tax return, the state probably would not have given him a loan to pay taxes on California.
He could be taxed twice. “He finally went to Florida,” he said, as the state has no state income tax.
Such are the complex tax considerations for the millions of people who telecommunicated during the epidemic and worked in a different position from their usual workplace.
Workers may have to file tax returns in more than one state, և in certain situations they may have taxes in both states. Details depend on your home state որ in which state you worked in 2020.
“Each state has its own rules,” said Eileen Cher, director of advocacy for tax policy at the American Institute of Chartered Accountants. And states can apply the rules differently depending on what kind of home the worker temporarily calls home during an epidemic.
“Anyone who has worked remotely during the epidemic, whether their home is different from their workplace, whether they have lived with family or friends, or their vacation home,” needs to assess their tax situation, “said Ared Walchak, vice president. Chairman of state projects in the tax fund.
State income tax rules are notoriously cunning. Salary income is generally taxed where you work, but your home country can tax all your income from any source.
Thus, someone who lives in one state and works in another may have to file two state tax returns, one in his or her home state, and a “non-resident” return to the state where he or she works. This does not usually result in a double payment. Usually, the employer withholds taxes from the employee’s salary for the working state, while the home country provides the employee with a credit or deduction for taxes paid to the ‘working’ state. (This is the case in 43 states և in Washington, according to the CPA Institute).
More than a dozen states, usually countries with borders and large numbers of interstate travelers, try to simplify things by concluding tax treaties with their neighbors. For example, Virginia has reciprocal tax transactions with several states և the District of Columbia. People who live in Virginia, work in an office in Washington, file a tax return, pay taxes in their state, do not need to worry about filing in Washington, according to the tax fund.
Fifteen states have said they will not tax people who were temporarily displaced during the epidemic, according to the CPA institute.
But a handful of states take a different, more aggressive approach. They apply special rules to remote tax employees based on the location of their employer’s office, even if the employee does not physically work there, according to the Tax Fund.
Six states adopted this approach before shutting down COVID-19. Arkansas, Connecticut, Delaware, Nebraska, New York և Pennsylvania. But now that policy is facing new controls, as many people did not have telecommunications during the epidemic, but were forced to work from home because their offices were closed.
New York State has so far stated that it will continue its policy despite the epidemic. If you do not live in New York but your “main office” is there, “telecommunication days during your epidemic are considered to be worked in the state,” as long as your employer does not have an official office in your remote workplace, says the State Revenue Service. Website:
“I think that’s a pretty bad answer,” said Raymond Edwards, director of the National Technical Assistant for Wealth Management at New York City.
This means that if you normally work in New York but work remotely from your New Jersey home during an epidemic, you still owe income tax to the state of New York, said Alan Sobel, president of Certified Public Accountants in New York.
However, New Ersey has announced that its new telecom residents will be provided with a loan for those New York 2020 taxes, although it is eligible for income as taxpayers now work within its borders, Walchak said. So residents will not have to worry about double taxation for now. But New Jersey estimates that as a result, it generates more than $ 1 billion in revenue, which means that the practice is unlikely to remain stable in the long run, Valchak said.
The practice of states receiving telecommunications taxes to go beyond their borders was still a problem before the coronavirus, and it received more attention because of its spitting in New Hampshire, Massachusetts. Last year, Massachusetts announced it would tax the incomes of expatriates who worked in the state but were telecommunicated during the epidemic. This was touched by New Hampshire, which has thousands of residents traveling to Boston and other Massachusetts cities to work. In October, it filed a lawsuit seeking a hearing with the US Supreme Court. (More than a dozen other states, including the state of New Jersey, have filed lawsuits asking the court to hear the case.)
Employees in New Hampshire are not taxed twice because New Hampshire is one of nine states without a state income tax. But New Hampshire officials are opposed to residents being taxed by another state for work done within its borders. (Massachusetts states in its lawsuit that the policy maintains a pre-epidemic “status quo”).
Because remote work can remain prevalent even after an epidemic, federal action may be needed to make telecommuting state income tax rules more balanced, tax experts say. A group called the Mobile Workers’ Coalition says it is building bipartisan support for reform.
“Telecommunications,” Sobel said, “will become the norm.”
So if you worked in a country other than your home country in 2020, how should you approach the tax season?
First, make a list of states where you have worked remotely, even if only for a short period of time, accountants suggest. If you have not followed carefully, try to estimate the number of days worked in each state. State law varies, but income is usually taxed after you reach the threshold, such as the amount earned, the number of days worked in the state, or a combination of the two. About half of the states start the clock in just one day, while others use it in 30 or 60 days.
Such rules usually apply not only to employees but also to self-employed people, says Dina Pyron, global leader in EY TaxChat mobile tax preparation program. “It doesn’t matter if you are an employee or a contractor.”
Taxation software can help you cut the hassle by asking questions that will determine the steps you need to take to apply in each state. Or if the exercise makes your head spin, it could be a year to get help from tax professionals. That’s probably the best approach if you have telecommunications from multiple states, say accountants.
You may be tempted to ignore the whole situation, imagining that no one will know that you worked remotely. But it’s a bad idea for many reasons, Cher said. In the event of an audit, states may require records, such as credit card and mobile phone bills, that may reveal your remote work.
If you are still working remotely in another country, it is also a good idea to make sure your employer knows that it will save your payroll taxes correctly. So you can reduce the likelihood of possible problems with tax time next year.