Northwest Arkansas Democrat-Gazette
Tax surprises
Working at home in a different state can complicate filing
If the pandemic caused you to relocate across state lines, even temporarily, the next surprise could be having to file an extra tax return and potentially pay more taxes.
Most states tax people who earn money within their borders, even if those people usually live and file tax returns elsewhere. Even a single day in some states can trigger a tax bill.
1 Remote working could mean tax hassles
Multistate taxation has long been a headache for entertainers, athletes, professional speakers and others who earn money in more than one state.
Changing attitudes about remote work mean that multistate taxation could be an issue for more people and companies in the future. Nearly half of the company leaders surveyed by research firm Gartner in June said they planned to let employees work remotely full time even after people can return to the workplace.
2 A tangle of tax rules
In most cases the taxpayer’s home state will offer a credit for taxes paid in other states, says Eileen Sherr, senior manager for tax policy and advocacy for the Association of International Certified Professional Accountants.
But if the tax rate in the new location is higher, the home state’s credit may not offset the whole bill. Also, if the person’s home state doesn’t impose an income tax but the other state does, then there’s no credit to offset the additional taxes.
Another issue: failing to file a required state tax return, either because people didn’t know the other state required it or because they’re hoping to get away with it. That can lead to audits, taxes, penalties and amended returns, says Mark Klein, chairman of Hodgson Russ law firm in New York City.
3 What can be done
Thirteen of the 41 states that tax income have said they will give remote workers a break if they moved because of the coronavirus, she says.
It’s possible that Congress could provide some help. A proposal in the Senate’s pandemic relief bill would require that states maintain the pre-pandemic status quo — in other words, pay for newly remote workers would be taxed the way it was before the pandemic.
Sherr suggests that people who may be affected by another state’s tax laws talk to a tax pro to assess what their liability might be and discuss the situation with their employer, in case their withholding needs to change.