A Tax Penalty for Working at Home?

Did you work from home in 2020? Or did you temporarily relocate to remote work from a sunnier state? If so, read this article on State Income Tax Rules for remote workers.

If you worked from home in 2020, there's a chance you might be required to send the government even more money at tax time. The COVID stay at home orders caused large numbers of US workers to begin working from home. Some workers even relocated, so they could work remotely from more pleasant states. If that's you and your work location was in one state, but your residence is in another, you'll want to consult the income tax rules of both states.

The Withholding Rule

Did you know that you need to adjust your state tax withholding if you shifted to a remote work location that is in a different state from your place of work? According to an AICPA Poll, 55 percent of those who worked remotely during the pandemic were unaware that failing to update their state tax withholding could result in tax consequences. Every state has their own tax laws related to remote working.

The Convenience Rule

The Convenience Rule holds that if your job is based in one state but, out of convenience, you live and work in another state, you will owe income tax in the state where the job is based. You may end up owing income tax to both your state of residence and the state of your work-place. Check the specifics in your employer's state.

The State Filing Rule

Know the State Filing Rule if you are working in a new state. The rules for when you need to file state income tax will vary by state. In New York, for example, you must file on the first day you work in the state. But in Arizona, you would file on day 61.

The Jordan Rule

What some have called the "Jordan Rule" came to prominence in 1991. In brief, Los Angeles decided to tax the Bulls' players for the portion of salary they earned during their games in LA. It's a lesson with a clear moral: if you work often across state lines, beware of the minutiae of each state's income tax rules.

Good News: Reciprocity Agreements

Some states have tax benefits that can help you, such as reciprocity agreements to keep workers' income from being taxed twice. New Jersey, Pennsylvania, Maryland, Virginia, West Virginia and Washington, D.C all have these arrangements in place.

Get Professional Help

These are just a sampling of some issues related to multi-state taxation that COVID has brought front and center. If you've been working remotely or plan to do so, schedule a tax consultation with Revo Taxpayer Advocacy. Their goal is to help you pay the taxes you owe, but not a penny more.