The Tax Headaches of Working Remotely During the Pandemic

However, New Jersey has announced that it will give its new teleworkers credit for those New York City taxes for 2020, despite being entitled to the revenues as taxpayers now work within its boundaries, Walczak said. So residents don’t have to worry about double taxation for the time being. But New Jersey estimates it will forego more than $ 1 billion in sales as a result – suggesting the practice is unlikely to be sustainable in the long run, Walczak said.

The practice of states going beyond their borders to tax teleworkers was a problem even before the coronavirus emerged, and it is attracting more attention due to a spit between New Hampshire and Massachusetts. Massachusetts said last year it would tax the income of non-state residents who had worked in the state but teleworked during the pandemic. This angered neighboring New Hampshire, where thousands of residents commute to work in Boston and other Massachusetts cities. In October, she filed a lawsuit asking the US Supreme Court to hear her complaint. (More than a dozen other states – including New Jersey – have filed briefs asking the court to consider the case.)

New Hampshire workers are not double taxed because New Hampshire is one of nine states that do not have state income tax. But New Hampshire officials refuse to allow residents of any other state to be taxed for working within its borders. (Massachusetts said in a filing in response to the lawsuit that the policy is maintaining the pre-pandemic “status quo”.)

Since remote working could remain popular after the pandemic, federal action may be needed to make state income tax rules more uniform for teleworking, tax experts say. A group called the Mobile Workforce Coalition says it is building bipartisan support for reform.

“Teleworking,” said Sobel, “is becoming the norm.”

So if you worked in a state other than the usual in 2020, how should you approach tax season?

First, make a list of all the states you’ve worked remotely in, even if only for a short period of time, the accountants suggest. If you haven’t had a good look at it, try to estimate the number of days worked in each state. State laws vary, but typically income is taxed once you hit a threshold, such as: For example, the amount of money earned, the number of days you worked in the state, or a combination of both. About half of the states start the clock in just one day, while others use it in 30 or 60 days.

These types of rules generally apply not only to employees but also to freelancers, said Dina Pyron, world leader in the EY TaxChat mobile tax preparation app. “It doesn’t matter if you are an employee or a contractor.”

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