income tax

Working From Home May Affect Your Taxes

It feels as if everything is changing due to the coronavirus pandemic; events are canceled, stores are closing, schooling is different, and now, your taxes may be changing as well. While many organizations continued to work from their office locations throughout the pandemic, or closed the office temporarily but have since resumed normal operations, many employees were asked to continue working from home. 


Working from home has proven to be a positive experience for many. In fact, 3 out of 4 CFO’s plan to move at least 5% of their workforce to work-from-home positions, according to Gartner’s Survey


However, while working from home may be ideal for some, there may be hidden consequences to pay attention to. For starters, here’s how working from home may affect your income tax.


Changes to Your Income Tax


There are several states that tax your earned income right away if you work and reside in different states, while others only tax after a person stays for 30 days or more. This means that if you typically work in Boston, but went to stay with your parents in California for the duration of quarantine, then you may have to pay income tax in both Massachusetts and California. 


However, there is a silver lining; the District of Columbia, along with thirteen other states, have all agreed to hold off on taxing workers who have relocated due to the pandemic. This means that the people who relocated on a temporary basis will only have to pay taxes in their home state/normal state of employment. 


There are also states who have started pacts with one another in an attempt to reduce the number of taxes for their residents. Pennsylvania and New Jersey are one example – if your primary place of work is in New Jersey, but you had to temporarily move to Pennsylvania during the pandemic, you will only have to pay income taxes in New Jersey. 


Tax Strategies


These tax consequences will not only have an effect on employees’ personal income taxes but on their employers as well. As we mentioned before, if a company is located and does business in New York, then their state taxes (and their employees’ income taxes) will be owed to New York. This connection is called a tax nexus. 


To use a similar example as previously mentioned, if this New York company now has the majority of its employees working from home in Massachusetts, then the business will now have tax nexus’ in both New York and Massachusetts.


Nevertheless, if a company is going to choose to keep the majority of their employees on a work-from-home basis, then they’ll need to do some serious research. The financial effects of a decision like this could be a game-changer. 


Is your business struggling to proceed in a post-COVID world? Are you in need of income tax advice? Taurus CPA Solutions is here for you. Visit our services page for more info, give us a call at 410-465-4600, or contact us online today.


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