Due to the pandemic, it’s likely that you or someone you know works remotely, at least temporarily. Here are a few factors to keep in mind when filing your taxes, potential problems that may arise, and relief opportunities that may be available to you. When in doubt, our experts at Core Group can help you devise the tax strategy that’s right for you.
Telecommuting vs. Remote Work
Although the terms are often used interchangeably, they aren’t fully synonymous. Telecommuters often live in the same geographic location as their employer and may occasionally go into the office for company meetings or meet with local clients. Alternatively, a truly remote gig imposes no location restrictions. If you’re unsure which camp you fall into, ask your employer. Additionally, if your address has changed temporarily or permanently, inform your employer as soon as possible. They can be an invaluable resource for determining tax withholding requirements.
Independent Contractors vs. Employees
Tax requirements vary for independent contractors and employees. The distinction revolves around two key factors: control and relationship. According to the IRS, generally “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” In other words, if you dictate your own working hours and processes (as long as you meet project deadlines), you’re probably an independent contractor.
What If I Work in a Different State than My Employer?
Although more employees are in this situation due to the pandemic, it isn’t a new one. According to Business Insider, millions of Americans live and work in different states, even during “normal” years. For example, many New Jersey residents commute to NYC for work, and many people who live on the Kansas side of Kansas City commute to the Missouri side. As a result, many tax laws are in place to ensure employees are not overtaxed but states still receive their fair share of revenue.
States decide if an employee’s income is eligible for taxation in their state by defining their:
- State of residence
- Domicile
Your domicile is your permanent residence. You can only have one domicile at a time, and your state of domicile typically maintains authority to tax all of your income.
In contrast, a person can qualify for multiple states’ residence laws, which sometimes leads to paying more income taxes. Many states classify a person as a resident if they spent 6+ months living there, and others determine residency on an income basis, requiring them to file taxes if they earned a certain percentage of their total income there.
Potential Tax Relief Options
Temporary Safe Harbor
In response to the pandemic, 13 states don’t require businesses to withhold state income taxes for remote workers who moved to another state temporarily, according to the Association of International Certified Professional Accountants. These states are: Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, and South Carolina.
Tax Credits
If you’re deemed a resident in two different states, some states offer a tax credit for the income tax collected by the state that’s not their domicile. Oklahoma falls into this category.
Reciprocity Agreements
Some neighboring states have formed agreements with one another to avoid double-taxing people who live and work in different states. They establish employees as residents in the states where they live, not where they work.
Can You Deduct Home Office Expenses When Working Remotely?
Unless you fall into one of the groups below, you cannot deduct expenses for remote work. Your best bet is to request reimbursement directly from your employer.
Employees who are eligible for deductions include:
- Armed Forces reservists
- Qualified performing artists
- Fee-basis government officials
- Employees with impairment-related expenses
- Independent contractors or freelancers completing all tasks from home
Even if you fall into one of these categories, certain criteria must be met:
- Your home must be your principal place of business.
- You can only deduct expenses that are solely related to your job.
Create a Plan for Filing Taxes
Given the complexity of these issues, it’s wise to enlist the help of tax experts like ours at Core Group to identify which rules and relief options apply to your situation. Don’t hesitate to reach out and set up a discovery meeting — whether it’s your first time filing taxes as a remote employee or you just want to cover all of your bases.
