February 15, 2022
As the pandemic goes on, many of us are coming up on two years of working from home. Many businesses are even switching to remote work permanently, seeing how many employees value the flexibility and comfort of remote work.
Remote work has many benefits, but one of the drawbacks is that it makes filing your taxes more complicated, particularly if you are working from home in a different state from the one your company is based in. Before filing your tax return, here is what you need to think about and discuss with your accountant.
Does Your State Have Taxation Agreements?
Even before remote work, it was common for workers to live in one state and work in another (state borders are porous, after all). Many major metropolitan areas, such as New York City, have workers who commute from different states, even at normal times.
To prevent a gnarly tax burden, some states have an agreement where you can get a tax credit for paying tax in another state. That way, if your employer withheld tax from your paycheck and you were working in Virginia, but you lived in Washington, D.C., you wouldn’t have to pay income tax.
However, not all states have such tax credits. Even in states that have residents who work in different states, such as New York, their taxes are based on job location, not residency. Be sure to ask your accountant about the state regulations that apply to your situation.
Working remotely in multiple states?
If you spent an extended period working in a state that you do not normally live in, for example, if you worked from a second home or temporarily moved to stay with a friend, you may still need to file a nonresident income tax return.
Even if a state has a tax credit system with other states, you may still need to pay extra taxes if the tax rate in your domiciled state is much lower. For example, if you are based in Texas, which has no income tax, but spend half the year working from a temporary rental in New Mexico, you will have to pay the difference.
The more states that are involved in your tax situation, the more it pays to hire a tax professional to help you navigate your finances.
What Deductions Are You Eligible for?
Working remotely has its conveniences, but it also means that, as an employee, you are on the hook for many work-related expenses that your employer would otherwise pay, such as your Internet bill, office supplies, and a desk chair.
Unfortunately, due to the Tax Cuts and Jobs Act of 2018, you can no longer deduct these work-related expenses for working from home until 2025. The state may also have extra regulations in place if it deems that you are working from home as a matter of convenience, not necessity.
The tax code is rapidly changing to adjust to our changing economy. Be sure that your tax professional is up-to-date on the latest developments so you don’t get in trouble for claiming deductions that you are not actually eligible for.
Paying Taxes While Working Remotely
If you have spent the past year working remotely, then tax season comes with a few extra headaches, particularly if you worked from a different state than the one your employer is based in. To navigate tax credit agreements between states, nonresident tax returns, and changing bylaws around deductions, the best thing to do is to consult with an accountant. A professional can make the tax filing process as effortless as working in your pajamas.
Staying on top of record-keeping
When it comes to taxes, it’s always important to keep accurate records, but it’s much more so when there are so many uncertainties. As a result, keeping track of how many days worked and how much money was earned is the smart thing to do.
Should You Consult a Tax Accountant?
Even in the best of times, tax laws are confusing. If you worked remotely during the pandemic in a location other than your office, it’s a good idea to speak with a tax accountant to determine your tax liability and recommend the best solutions to reduce your taxes, such as adjusting your withholding.
If you need help with your bookkeeping and accounting, don’t hesitate to schedule a consultation with us!
Even though we are based in Albany, NY, we offer our expertise in business accounting, bookkeeping, and tax preparation all across the United States.
