What remote workers need to know about their 2021 taxes
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Working from home — or any location away from the office — can come with some benefits. You may not have to worry about simplifying your tax situation.
You should be familiar with your state’s tax obligations if you work remotely in 2021. You may have to file multiple state tax returns depending on factors such as your residency, the length of your employment, and possibly where your company is situated.
Jared Walczak from the Tax Foundation, vice president for state projects, stated, “If you spend a substantial time out of another country in the last 12 months, it is very likely that you will have an income-tax liability there.”
This can make it difficult. Each state has a different approach to how you should tell them what income you have earned.
Some states allow non-residents to work in their territory for up to 30 days, without any withholding requirements. Others states also have thresholds that kick in quicker, with 23 states requiring you to pay taxes as soon as you start working. Others have a wage-based threshold, and nine have no income taxes.
Your state has the authority to tax income earned anywhere. It is not clear if another state also has this authority.
Many states provide a tax credit which counts towards the amount you owe to the jurisdiction in non-residential where you work and pay taxes. The credit will not completely eliminate any amount owed to the state where the tax rate is higher.
“Sometimes the tax credits help, but sometimes they do not,” said April Walker, lead manager for tax practice & ethics with the American Institute of CPAs. These credits are not dollar-fordollar offsets.
Meanwhile, some states — 16 of them, according to the institute — have reciprocal agreements with one another. If your state of residence has a pact, then you don’t need to pay taxes in either one.
If you are a Maryland resident but live and work in Washington, there is no need for you to worry about Maryland taxes.
There also are a handful of states — Connecticut, Delaware, Nebraska, New York and Pennsylvania — that impose a “convenience of employer” test for remote workers. The state where your business is located is the one you will be paying taxes, regardless of whether or not you are physically present.
Also, if you are an independent contractor for your company — you do not receive a W-2, but rather, say, a Form 1099-NEC — you are considered self-employed and taxed as such. It means that you are responsible for determining the states to which taxes you owe tax. This is based upon factors like where you currently reside, the time you worked, the amount you earned, and your residence.
No matter what your situation is, it can be worth speaking with a tax professional if you believe you might need to file multiple returns in different states.
An eminently possible change to the taxation for remote workers is likely, considering the country’s rapid growth in mobile labor (45% of all full-time workers were remotely working as of September according to Gallup).
Senate bipartisan bill Remote and Mobile Worker Relief Act of 2021This would prevent states from imposing withholdings or taxing non-resident workers who have been in the state for less 30 days. B similar measureThe House is currently considering this matter.
Yet another Senate bill (with a related oneThe House) will limit states’ power to impose the “convenience rule employer” on nonresidents. However, all of these measures are currently idling at Congress depuis 2021.
Walker stated that even though some states might have changed or relaxed their regulations earlier during the pandemics, it is not likely they will continue doing so. There is a possibility that some states may increase the level of enforcement.
She stated, “As taxpayers, you cannot assume that the state won’t go after you.”