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Navigating the Tax Maze of Remote Work: What You Need to Know

Working from home has become the new norm for many Americans, offering flexibility and comfort. But amidst the convenience, there lies a tangled web of tax complexities that can catch remote workers off guard come tax season.


In 2020, a significant portion of the U.S. workforce embraced remote or hybrid work setups, blurring the lines between where they live and where they work. This shift has implications for income tax, potentially leading to double taxation or intricate filing procedures.

Understanding where income is taxed is crucial. Typically, it's taxed based on both your residency and work location. However, if you work remotely for an out-of-state employer, you might face challenges, especially in states like Connecticut, Delaware, Nebraska, New York, and Pennsylvania, which enforce the "convenience of the employer" rule.


The convenience rule means that even if you never step foot in your employer's state, if they're based in one of these states, you could still be liable for income taxes there. This situation could result in double taxation if your home state also taxes your income.

Moreover, for those commuting across state lines, tax calculations can become even trickier. Splitting workdays between different states requires proportionate tax filings for each, adding another layer of complexity.


map of US states with reciprocity tax agreements
State Reciprocity Agreements - Tax Foundation

However, there are solutions. Many states have reciprocity agreements, simplifying tax obligations for cross-border workers. Under these agreements, individuals only pay taxes in the state where they reside, regardless of where they work.


These agreements not only benefit workers by reducing tax burdens and simplifying filings but also support states' economies. They foster job opportunities across borders and streamline tax administration, ultimately benefiting taxpayers and state governments alike.

As remote and hybrid work arrangements continue to shape the modern workforce, it's imperative for state policymakers to adapt tax codes accordingly. By embracing flexibility and modernizing regulations, states can better support their residents and foster economic growth in an evolving landscape.


Are you remote or hybrid worker needing guidance on properly filing your income taxes? Request a free consultation HERE with Mark W. Sullivan, EA .


About the author

Mark W. Sullivan, EA founded Sullivan Consulting in 1998. He specializes in federal tax controversy representation, appeals and consulting on behalf of individuals, businesses, law, and accounting firms nationwide. In addition, he has served as the consulting and expert witness in numerous civil and criminal cases in multiple federal district courts.

Mark has an unlimited Enrolled Agents license and is admitted to practice before the Internal Revenue Service based on his extensive experience as a Revenue Officer in New York, NY, St. Louis, MO and Washington, D.C.

 

Copyright 2024


Mark Sullivan Consulting, PLLC.


Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.


Additional references:

"How Are Remote & Hybrid Workers Taxed", Noah Peterson, Tax Foundation, 2/14/24


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