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How Working Remotely Could Affect Your Taxes

February, 2022

Courtesy of our partners at Tax Rite

Monday, January 24, 2022, was the official start to this year's tax season. By now, everyone should have received most of the information they need to make sure they file a complete and accurate return.

When COVID-19 struck, many employers quickly switched to a work-from-home model for their employees. Many of them began working in a state other than where their office was located. While some workers have returned to their offices, as the pandemic drags on, more offices continue to work remotely with no back-to-office dates in sight.

If you're working remotely from a location in a different state (or country) from that of your office, then you may be wondering if you will have to pay income tax in multiple jurisdictions or whether you will need to file income tax returns in both states. Here's what you should know:

Generally, states can tax income whether you live there or work there. Whether a taxpayer must include taxable income while living or working in a particular jurisdiction depends on several factors, including nexus, domicile, and residency.

Many states - especially those with large metro areas where much of the workforce resides in surrounding states - have agreements in place that allow credits for tax due in another state so that you aren't taxed twice. For example, in metro Washington, DC, payroll tax withholding is based on the state of residency, allowing people to work in another state without causing a tax headache. Other states such as Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania tax workers based on job location even if they reside (and pay tax in) a different state.

Tax laws are complex even during the best of times. If you've been working remotely during the pandemic in a different location than your office, then it pays to consult with a tax and accounting professional to figure out your tax liability and recommend a course of action to lower your tax bill, such as changing your withholding. All Family Protection Plan products from Legal Club contain a Free Tax Preparation and Advice benefit. To learn more about the plans offered by Legal Club, browse this website or call us at 800-305-6816.

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Any accounting or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties..

 

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