Many employees are approaching the one-year mark of working from home, with no set date to return to the office. For those who live in different states from where their employers are based, tax returns due this year and beyond may be particularly complicated.

The pandemic has prevented clear-cut answers to questions that are important when figuring out where to pay state income tax: Is working remotely a convenience or a necessity? When does a temporary situation become permanent?

Many states tax workers based on where they physically are, while a handful of states tax nonresidents who are telecommuting to employers in their states if they’re working from home out of convenience, rather than necessity. Amid the pandemic, some states have given taxpayers a reprieve. Others have been silent, or offered limited guidance. There’s a helpful chart here.

Several states, including New York and Massachusetts, have taken a particularly aggressive approach. They’ve said they consider almost all telecommuting to be out of convenience, not necessity, even if, say, an office was closed due to COVID-19. So nonresidents still owe income tax to the employer’s state, even if they haven’t been to the office in months.

Keep in mind that employees who live in states that have reciprocity agreements with the states they work in don’t have much to worry about — they’re generally exempt from nonresident taxes. Here’s a list in the right-hand column.

In addition, there are states that typically provide credits to their residents even if there isn’t reciprocity in place, such as New Jersey and Connecticut for New York workers.

Those at risk include teleworking residents of no-income tax states, such as Florida or Texas, since they won’t receive a credit for taxes paid to their employer’s state. And others could potentially face double taxation if their resident states simply have different rules from their employers’ states when it comes to how to tax teleworking.

So a Maryland resident teleworking for a New York employer would potentially face taxes in Maryland, which taxes employees based on where they’re physically located, and in New York, which taxes nonresidents whose employers are based there.

First, a piece of general advice if you’re worried about different state tax liabilities. Contact the HR department to find out where exactly your employer is withholding taxes on your W-2 form. If there have been any changes, find out when they took effect.

Don’t assume because you’ve decamped to another state your W-2 will reflect that. Keeping a log of days worked and from where is important since states have different thresholds when they’ll subject nonresidents to withholding.

Those working for New York-based companies and living elsewhere may want to raise something else with their HR departments — setting up a bona fide employer office at home. Successfully doing so could mean that in the future, the days you work will only count as days that will be logged in your home state. New York issued the exception back in 2006, and in recent guidance, confirmed that bona fide home offices would continue to exempt nonresidents from taxation.

You’ll have to meet four out of six pretty stringent factors, such as: The home office is a requirement or condition of your employment; some of the core duties of your job are performed from the home office; you meet with clients or customers regularly in the home office, or your employer reimburses you for home office expenses.

And you’ll have to satisfy an additional three out of 10 secondary factors, including that you use a specific area of your home exclusively to conduct business, separate from your living area.

Another option for those working for companies with multiple offices is to ask for your employment location to be changed to the office in your home state. It has to be clear in the company records that the new office is the worker’s primary office, and not just in name only, according to Tim Noonan, a tax partner at Hodgson Russ.

If these options seem too onerous or don’t apply to you, there still could be some tax relief in the future. New Hampshire, a state that doesn’t levy an income tax on wages, recently sued Massachusetts over nonresident taxation. The Granite State says it’s unfair that Massachusetts is making New Hampshire residents who used to work in Massachusetts before the pandemic continue to pay its 5% state income tax while working from home.

The Supreme Court hasn’t said whether it will hear the case. But if it does, and sides with New Hampshire, New York and other states’ tax stance could be invalidated.

In the meantime, remember that states’ laws are complicated enough so it’s best not to guess or assume you won’t have to pay. The world may be unpredictable, but taxes rarely are for long.


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