By Laura Saunders
If you've worked from home this year, and that home is in a
different state from your office, think about your taxes
immediately. Acting now could help avoid surprise bills, interest
and penalties when filing state taxes next year.
This year the coronavirus pandemic turned millions of workers
into telecommuters, and many haven't yet returned to the office.
People who have worked from a state that isn't their usual one may
need to file returns and pay taxes to more than one state for
These requirements will come as a shock to many: More than 70%
of Americans don't know that telecommuting from another state can
affect a worker's state-tax bill, according to an October survey by
The Harris Poll for the American Institute of CPAs.
"I'm very concerned about next year's filing season. Lots of
taxpayers will be stunned to find out how working remotely has
complicated their state taxes," says Jamie Yesnowitz, a state and
local tax specialist in Grant Thornton's national office.
The challenge is that each state's tax system is a unique mix of
rules. When someone owes income tax to more than one state, these
systems often clash, and the taxpayer can wind up owing more tax,
or the same, or (rarely) less. The outcome often depends on
variables like tax rates, credits and agreements between the
This year some states have added even more complexity by issuing
special tax rules for the pandemic. Fourteen states and the
District of Columbia have announced they won't tax people working
there remotely because of Covid-19, according to data compiled by
That sounds generous, but some states offering this benefit --
including Massachusetts, Maine, Georgia, and Pennsylvania -- also
intend to tax remote workers whose jobs are based in-state while
they are working remotely out of state due to the pandemic,
according to Eileen Sherr, a state-tax specialist with the
In other words, if a Boston tech employee has been working from
home in New Hampshire since March, Massachusetts still wants its
Massachusetts's move has so incensed New Hampshire officials
that in mid-October they asked the U.S. Supreme Court to block it.
New Hampshire Gov. Chris Sununu said the Granite State has some
80,000 residents who normally work over the border in the Bay
State, and with offices closed, many have been telecommuting from
home. He says these workers shouldn't owe Massachusetts's 5% income
tax if they aren't there. (New Hampshire has no tax on earned
income like wages.)
A Massachusetts spokeswoman said the state hasn't submitted its
response to the Court yet. If New Hampshire ultimately succeeds,
the case could have ripple effects: New York has long taxed workers
who are residents of New Jersey, Connecticut, and elsewhere on
income from New York-based jobs, and several other states assert
this right as well.
The upshot: multistate taxes are hellishly complex, and remote
workers who don't check them before year-end risk higher bills plus
avoidable interest and penalties next year. Here are steps to take
Determine where you were in 2020. How many states did you work
in? How many work days did you spend in each state? State taxes
depend in part on whether you're a resident, and that can depend on
how many days you were in the state.
How will a state know you worked there? Employers will include
information on W-2 forms and tax preparers will ask their clients,
and neither will submit false information. DIY filers should
remember that tax returns are signed under penalty of perjury.
Find out the rules for the states where you worked. What are the
criteria for being a taxable resident of the state you were in? Are
there special pandemic rules that make them different this year?
Does the state you worked from have an agreement with the state
where your office is located that prevents double taxation? These
are common in states that share a border, such as Wisconsin and
For information, check state-tax websites or this chart from the
Also check taxes on nonresidents if you worked in a state but
not long enough to be a resident there. Most states have these
Next, find out the tax rates and rules in the states where you
worked. If you'll owe taxes to two states, are there credits to
prevent or reduce double taxation?
Talk to your employer. State tax authorities can be aggressive,
but they may desist if your employer has assigned you to an
existing office in another state and then withheld taxes for that
Say that a New York-based employee of a national firm moved to
his Florida beach home during the pandemic. If his firm reassigned
him to its nearby Florida office and has adjusted his W-2 form to
show this, the worker has a better chance of avoiding New York
income taxes, says Mark Klein, chairman of the law firm Hodgson
Russ, which specializes in multistate taxation.
Note: The workplace must be a "bona fide" company office, not
just a room in an employee's house.
"Domicile" also counts. State tax law often considers where the
worker's true home, known as domicile, is in addition to time spent
in-state. Key factors include where someone votes, has club or
religious affiliations, has a driver's license, and plans to be
Mr. Klein says aggressive, high-tax states like California and
New York are likely to assert that high earners who left during the
pandemic and later return owe 2020 tax because they didn't change
Adjust state withholding or estimated taxes. If you suspect
you'll owe more tax than you anticipated, consider upping your
withholding or making larger estimated tax payments. Paying in too
little during the year can trigger interest and penalties at filing
time in 2021.
Get professional help. If lots of tax is at stake -- say, if
you've received a big bonus or sold a key investment while working
remotely out-of-state this year -- think seriously about getting
professional help before year-end, while there's time to make smart
moves. It could save a bundle.
Write to Laura Saunders at firstname.lastname@example.org
(END) Dow Jones Newswires
December 04, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.