February 12, 2021
With the onset of the pandemic in 2020, many people had to leave the office and begin working remotely from home. If you were affected, you may have had to juggle work and family — with kids at home due to school closures. Finding creative solutions that worked for everyone became the new norm.
Now with tax time approaching, you may need to address some tax implications of working remotely. So, let’s explore questions to consider about potential tax issues as you prep yourself for tax time.
You still pay tax on your income, right?
Yes, indeed. The income from your job will be reported to you on a W-2 in January, and you’ll report that income on your tax return. Nothing there has changed, at least for the federal tax return. But you may have special tax issues to deal with when you file your state income tax return, unless you live and work in a state that has no income tax. These states include:
- South Dakota
What’s different about state returns for remote employment?
If you live in the same state in which your employer is located, state taxes are pretty straightforward. But when the pandemic hit, commuting to the office became a thing of the past for many. Some people left urban areas and moved to less-populated areas of the country where the cost of living was less expensive. If you crossed state lines to do that and now live in a different state from your former office, you may be dealing with the income tax rules of two states, not just one.
So, do I owe taxes to both states?
Good question — it depends. Most states look to your physical presence in determining whether to tax you.
- For example, if you live and work in one state for an employer in another state, you will only owe tax to the state in which you live and work.
But each state is different, so be sure to use tax preparation software such as TurboTax® that considers the facts and circumstances of your employment situation in light of the tax laws of the states involved.
Can you deduct the costs of working from home, such as your computer, internet, office furniture, and supplies?
Probably not. Unfortunately, the tax act passed at the end of 2018 axed those deductions for most employees. However, there’s an exception for teachers that allows them to deduct up to $250 for classroom supplies. If you aren’t entitled to a deduction for your expenses, your best bet is to ask your employer to give you a non-taxable reimbursement for those costs.
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The information in this article is for general educational purposes only and not intended to provide specific advice or recommendations. Please discuss your particular circumstances with an appropriate professional before taking action.