As remote work has continued to be the norm, with as many as 27.5% of employees working remotely at least some of the time, many workers have realized – to their surprise – that they may be in a double-tax situation. Remote work offers flexibility, but it also brings tax complexities, especially when working across state lines. Let’s dive into state taxation rules, residency, and available deductions, so that you can work remotely with confidence and compliance. If you work in one state and live in another, here are your top tips for this tax season.
How to Handle Multi-State Taxation for Remote Work
Out of the various remote work tax implications, multi-state taxes tend to have the most potential negative impacts. A handful of states have “convenience rules” regarding multiple state filings, leading to some workers being double-taxed.
Simply put, you should anticipate filing a state return in any state where you’ve earned income (be it from wages, self-employment, or owned property) as well as your state of residence. Individuals need to think of many factors while living and doing taxes in multiple cities. Typically, one will file a resident tax return for the state they live in, and a non-resident tax return for the state they work in.
Unfortunately, each state has its own rules for taxes. Nine states have no income taxes at all: Florida, Alaska, Nevada, New Hampshire, South Dakota, Texas, Wyoming, Washington, and Tennessee.
State reciprocity agreements, although not universally available, can help avoid double taxation. Typically, you should expect to pay income taxes to the state you live in only, with some exceptions.
Those who are officially employed in Connecticut, Delaware, New York, Pennsylvania, or Nebraska may be double taxed, because those states assert that they have a right to impose a tax on wages earned in the state, rather on where you live. This can result in both being taxed by your state of residence and the state in which you work.
Remote Work and Common Deductions
Are remote work expenses tax deductible? Many people are hoping to deduct a home office by using Form 8829, but if you receive a W-2 exclusively from an employer, you are not eligible due to the Tax Cuts and Jobs Act. Independent contractors filling out a 1099 form can only deduct expenses that are exclusively for business uses. Remote work tax deductions are quite different for those who are self-employed. They can deduct home office expenses, business supplies, insurance premiums, and more if certain criteria is met. As always, it’s important to talk with an accountant to verify your eligiblility for deductions and save all receipts.
Consult with a tax professional to guide you through the intricacies and optimize your tax strategy. Stay informed, keep detailed records, and consider professional advice to ensure a smooth tax season in the world of remote work.
About Tabitha Regan
Tabitha Regan is the Founder and CEO of LittleOwl CPA. She is a Certified Public Accountant, Certified Financial Planner™ and Personal Financial Specialist. In her 16+ year career span, she has developed an expertise in the specific needs of small businesses and busy professionals with accounting, tax and advisory services.
