Double Taxation On State Taxes For Remote And Hybrid Workers

Since pandemic, many employees are working from home remotely or have hybrid work schedules. Because of the increasing numbers of remotely working employees, it triggers tax implications, especially if you are living and is working remotely in two different states.

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What Are “Convenience Of The Employer” Rule And State Reciprocity Agreements?

States have different rules when it comes to taxes. An employee living in a different state than where their employee is in business might come with a complicated tax scenario.

Reported by AOL, some states tax workers where their employer is located based on “convenience of the employer” rule. According to a Tax Foundation analyst, Garett Watson, there are six states that have this rule, namely, Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania. With this rule, employees living in different state might be subjected to double taxation.

To avoid double taxation, check if your state offers state reciprocity agreements with its neighboring states. With this, employees will be taxed once, and it will be in the state that they live. According to Tax foundation, sixteen states have this with neighboring states namely, Illinois, Indiana, Ohio, Michigan, Wisconsin, Iowa, Minnesota, Kentucky, Virginia, Pennsylvania, Maryland, New Jersey, West Virginia, Montana, North Dakota, and the District of Columbia.

Employees will have to file two state returns, but because of the credit via state reciprocity agreement, employees will not be paying twice on the same income.

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So, How To Avoid Double Taxation?

CPA Janet Krochman advised to check with the company’s HR department to see any additional state withholding for the non-resident state. She also said, to Yahoo Finance, to prepare a separate state W-4 form to lessen the other state withholding especially if you are getting a full refund or credit from your state.

If working remotely or hybrid in a state different from your employer, better consult a tax professional. If you can’t afford it, you may check Volunteer Income Tax Assistance so you may receive free tax preparation, that is, if you made not higher than $ 60,000 last year, are disabled, senior citizen or have a language barrier.

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