Understand the tax consequences of remote work

However, with companies more mobile than ever, and with states flush with additional revenues that can be used as a buffer for any modest transition costs, there has never been a better time to repeal these rules. All but five states have significant room to improve on at least one of these eight factors. Arizona and Maine are the only states to impose income taxes but score well across each of the eight areas of reform considered in this paper.

• To address this problem, federal and state tax codes permit NOLs to be carried into other tax years.
• New York was taking a real broad interpretation of the rules and they were winning.
• There is no reason why a federal tax cut should result in an unlegislated state tax increase, nor why higher federal taxes should deprive states of revenue.
• “It’s messed up to assume they have to go to work, but you don’t. It’s not just a productivity issue. It’s morally wrong.”
• You’ll be able to deduct a percentage of eligible expenses based on the size of your workspace.
• Please note a 2.95% surcharge will be applied to all credit card payments when processed.

Employers are responsible for withholding federal income taxes, FICA taxes (Social Security and Medicare), and federal unemployment taxes (FUTA) for remote employees. Confusion may arise when it comes to withholding state income taxes, as each state has different rules and regulations. It is important for employers to stay up to date on all tax laws and requirements for remote employees. Ordinarily, states can tax their residents’ income from all sources, and the income of nonresidents when that income is earned in the state.

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The state constitution of Texas outright forbids its government to create a state income tax. Remote workers in these states who do not perform work in other states only have to file federal tax returns. For withholding purposes, employers should be cautious when determining whether to stop withholding for remote or hybrid employees in convenience-of-the-employer jurisdictions. In jurisdictions in which an employer is required to withhold, failure to properly withhold taxes can become a liability how do taxes work for remote jobs for the employer, plus potential interest and penalties. However, as Zelinsky points out in his renewed petition, times have changed — and they have changed drastically since 2003 due to advances in technology, coupled with the need to quickly pivot to remote work on a large scale because of COVID-19. Meanwhile, nonresident taxpayers working in other convenience-of-the-employer jurisdictions should consider whether to file similar refund actions challenging the convenience-of-the-employer rules.

In fact, this deduction is only available to self-employed people who use their home regularly and exclusively for business during the tax year. Workers who are employees of a company would not qualify for a home office deduction. This means that, unless an employer has a reimbursement policy indicating otherwise, remote workers are not compensated (whether through a deduction or reimbursement) for expenses related to an employee’s home office, such as potential repairs or utilities. Remote work appeals to many workers due to the possibility it presents to work from anywhere, not just from “home.” However, the location you work at matters when it comes to taxes and can have different implications depending on the state in which the work is being performed. If an individual is working in the same state in which they live and pay taxes, it is unlikely to result in any complex tax situation.

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States are unprepared for the ongoing shift to remote and flexible work arrangements, or for the industries and activities of today, to say nothing of tomorrow. Ossified tax codes stifle innovation, misdirect investment, and constrain the choices of individuals and businesses. But mobility fosters competition, so states have not only the opportunity but the necessity of catching up—of transforming their tax codes to make them more neutral, more competitive, and consequently more pro-growth. If you worked remotely in 2021, it’s worth making sure you understand your state tax obligations this tax-filing season.