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The State of Taxes: If You Live and Work in Different States, Working Remotely May Affect Your Taxes

Since work from home days were implemented at the beginning of the COVID-19 pandemic, it’s safe to say they’ve run the gamut: first, many felt they were a welcomed break from the normal hustle and bustle; then, they had people feeling a bit down in the dumps (hello, isolation and stress from juggling parenting responsibilities with work responsibilities); now, they seem to be presenting a change for some when it comes to filing taxes. Although some employees are no longer working remotely, many still are. In fact, according to a Gartner, Inc. survey that studied 317 CFOs and finance leaders, 74% of companies stated that approximately 5% of their employees will permanently work from home after the coronavirus pandemic ends.

If you’re working from home for the foreseeable future—and have been doing so in a state other than where your on-site office is located—you may experience changes in your taxes. To help provide some clarity on this topic, our financial planning specialists at Creative Financial Planning are here to give some more insight on how this may affect certain workers.

Let’s Get Down to Business—Here’s Why Working Remotely May Impact Companies

A tax nexus is at the core of how a state taxes a company and its employees, and the nexus is based on three factors: payroll, property, and sales. Because of this, employees—which fall in to the nexus’s payroll factor—who are now working in a different state than they had been pre-coronavirus, are now expanding their company’s presence into a new state. This new presence may mean that your company is now responsible for following this new state’s payroll tax registration and corporate income tax laws.

If You’ve Been Taking Care of Business in a Different State, You Could Be Affected

If you’ve decided to spend the pandemic with your family or friends who reside in a different part of the country—and you’ve been working in this new location—you may be prone to tax withholdings in this new state. Additionally, you may also be required to file for a non-resident income tax return. However, these regulations vary state to state and depend on if you meet the state’s income threshold during the time you worked there remotely.

It’s Time to Make Differing Tax Regulations Your Business

Just as states have different driving, business, and mail-in ballot laws, you’ll also find that they have different tax regulations for people living and working in other states. For instance, there are certain states that offer income tax credits to people who work in another state. Let’s say your on-site office is based in New York, but you’ve spent the past several months working remotely in Connecticut. In this circumstance, you may receive a credit from the state of CT for the taxes you paid to the state of NY.

In other states, you’ll find that they’ve established an agreement with other jurisdictions to decrease duplicate taxes and non-resident tax returns for employees who work in other states—New Jersey and Pennsylvania are two states that fall into this category.

If your company has announced that you’ll be working remotely through the end of this year or permanently—and you plan to continue working in a different state—it’s important for you to answer the following questions:

  1. How will the state you’re working in remotely treat your income?

  2. How long can you work remotely in this new state before you’re responsible for adhering to its tax reporting laws?

Answering these questions now will help you in the long run, because while it may be nice to spend the pandemic with your family or friends in, let’s say, California, you may pay for this change come tax filing season.

Whether you’re a business owner or employee, the coronavirus pandemic has had an impact on everyone’s finances. If you need help navigating these changes by creating a financial plan or you’re interested in growing your wealth with the help of a wealth management specialist, the Creative Financial Planning team can help! To schedule a complimentary consultation with one of our financial planning specialists, contact us today.

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