The High Cost of Working From Home: Are You Being Double Taxed?

With no end in sight for the pandemic, remote work is on the rise.

According to Upwork’s “Future Workforce Report”, by 2028, 73% of employees could be working remotely. We’ve been inundated with articles singing the praises of the work from home life. From skipping a hectic commute to increases in employee satisfaction, remote work seems to be here to stay.

And on the surface, the idea of working for New York based company without paying for a Manhattan studio does have its appeal.

But before you accept that new remote job, here’s something to consider: You could be double taxed.

Even though you live in Flagstaff, Arizona, if you’re employed by a company in New York City, your income could be taxed by both New York State and Arizona. This is due to a “Convenience of the Employer Rule.”

And it’s not just New York. Similar laws exist in the states of Delaware, Nebraska, Connecticut, Pennsylvania, Arkansas, and Massachusetts. And they can be a serious headache for telecommuters.

What if you’ve just moved temporarily due to the pandemic?

You’re not exempt either.

If you’ve temporarily moved to Charlotte to ride out the pandemic with your parents, you also must pay taxes to New York. Why? Because that walk up in Brooklyn is still your permanent residence. Yes, it’s frustrating, but don’t lie, because auditors will use your records to verify your movements.

Are there any exceptions, or does every remote worker have to file twice?

Even in the previously mentioned states, there are exceptions to the rule.

Pennsylvania remote workers, or telecommuters who are employed by a company in Pennsylvania, may escape the double income tax. If you’re a resident of West Virginia, Maryland, New Jersey, Ohio, Virginia, or Indiana, you’ve been saved by something called a reciprocity agreement. In the simplest of terms, this means workers from these states that are employed by a Pennsylvania company (or vice versa) will only pay income taxes to the state where they live.

In addition, due the circumstances of a global pandemic, some states are offering temporary relief to telecommuters. 13 states, and the city of Saint Louis, have agreed not to tax remote workers who temporarily relocated during the pandemic. The states include the following: Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, and South Carolina.

Why are each state’s policies so different?

States decides their own income taxes. And some states have none. The states without income taxes include Alaska, Florida, Nevada, South Dakota, New Hampshire, Texas, Washington, and Wyoming.

Is there anything that can be done to change these Convenience Rules?

Well, New Hampshire’s governor is currently threatening to take Massachusetts to court over its new rules (which Massachusetts claims is only on a temporary basis). However, it’s unclear if such a move would be successful.

And in congress, representative James Himes has introduced a bill to limit the ability of states to tax nonresidents (the exception being for any work you perform while physically in the state).

Individually, there’s only so much you can control. But that doesn’t mean you have to give up on remote work completely. Many states offer a tax credit to help prevent your income from being double taxed.

When looking for a remote job, do your research first. Find out if your state has any reciprocity agreements and, if you do decide to look for remote work, consider targeting employers in these areas (i.e: if you work in West Virginia, try targeting employers in Pennsylvania versus New York).

What’s the takeaway for remote workers?

Ultimately, don’t let the prospect of a double income tax frighten you away from remote work.

With a global pandemic still raging on, teleworking will not be going away any time soon. But it’s important to know how a new remote job could potentially affect your income come tax time.

Do you research and prepare your taxes appropriately for the state (or states) you may have to file in.

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