Work from home tax planning

By now, working from home has become a new normal for some employees. Even as some offices reopen, many individuals hope to continue working from home indefinitely. But before adjusting to a permanent work-from-home environment, both employees and employers should be aware of possible SALT (state and local tax) implications.

State tax issues are complex and changing. If you are working from home from a temporary residence for a company in another state, you could potentially be liable for taxes in both your state of primary residence and the state you are temporarily living in. Your company may also need to pay tax in the state where you are doing work from a home office.

Many factors affect taxability of income, including days in the home office, location of the company, and type of organization. While states have different guidelines, nearly all states require income taxes from workers who are temporarily employed in the state. For almost half of states, these taxes apply to even one day of work.

Due to COVID-19, 13 states and Washington, DC have agreed not to enforce tax rules. Additionally, some states, including Maryland, Virginia, and DC have agreements with neighboring areas. However, many states including New York and California, will still tax remote workers for 2020.

In some situations, remote workers receive credits for taxes paid in other states. But when the state taxes are higher in the state where the remote work was performed these credits may not be enough to cover taxes owed.

Businesses must also be aware of tax implications since employees working remotely could trigger nexus rules that raise the business’s state taxes.

Now is the time to meet with a tax professional. Contact us today to discuss the specifics of your situation and determine what you need to do to protect yourself or your company from an unpleasant tax surprise.