Pandemic Leads to State Tax Complications for Remote Workers

Remote Workers Could Face Unexpected Tax Bills

When the coronavirus pandemic hit large cities in the spring, many newly-remote workers fled to less populous areas, often crossing state lines. The pandemic has lasted for longer than many expected it would, and some people have now been working from family members’ homes or Airbnbs in new states for nearly a year.

Now, as the end of the year approaches, those workers who have created temporary work-from-home setups outside the states where they are employed could face unexpected tax challenges. According to an October poll, more than 70% of Americans are unaware that working remotely from another state can impact their state taxes, so many could face surprises when it comes time to file.

Disputes Between States Over Remote Work Tax Protocol

Taxpayers will not be the only ones frustrated by complicated state tax laws when it comes time to file. States themselves are also warring about who should pay where. States like Massachusetts, Maine, Georgia, and Pennsylvania plan to charge income tax for workers who have relocated to other states during the pandemic. Fourteen other states and the District of Columbia have stated they will not tax people who have relocated to their states during the period of remote work.

Officials in states like New Hampshire, where earned income is not taxed, are frustrated that new residents who have been working remotely for companies based in Massachusetts will be forced to pay income taxes to Massachusetts during the pandemic. In fact, New Hampshire has asked the US Supreme Court to block Massachusetts’ cross-border tax collection proposal.

Preparing for Tax Season Now

Tax advisors say there are a few easy steps remote workers can take to prepare for tax season. It is a good idea for people to look back and think about where they have been working during the pandemic, and for how long. The amount of tax remote workers will pay will depend on how many days they have spent in each state. Some workers will pay income taxes in the state where they are employed, or in the state where they have relocated for the duration of the pandemic, or both.

A number of states have also implemented pandemic-specific rules about what qualifies someone as a taxable resident. These rules are important to research when preparing for when it comes time to file taxes. Consulting a tax professional is also a helpful way to get ready for what could be a complicated tax season.

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