The Tax Implications Of Working Remotely

Gallup suggests that only 36% of employees are engaged in their workplace, so as a remote team manager, the maintenance of clear, consistent communication is key. It’s also important to stay up to date with any changes in tax laws and regulations that may affect your multiple state tax filings. The tax laws and regulations are subject to change and https://remotemode.net/ this can have an effect on your tax liability. Staying informed will help you to make the necessary adjustments to your tax filings and minimize your liability. Some states may consider remote work to be performed in the state where the employer is based, while others may consider it to be performed in the state where the remote worker resides.

• This will make it easier for you to verify your expenses when it comes time to file your taxes, and it will help to ensure that you’re claiming all of the deductions and credits available to you.
• If you worked in more than one state in 2021, you may want to consult a tax professional to know what you’re dealing with.
• PwC, for example, announced in late 2021 that it would allow its U.S.-based client-serving professionals to work remotely going forward (“A ‘Big Four’ Firm Will Allow 40,000 Employees to Work From Home,” CNN Business (Oct. 2, 2021)).
• The foreign housing exclusion, for example, allows Americans who rent a home abroad to exclude a proportion of their housing expenses on top of the foreign earned income exclusion maximum.
• You take the square footage of your home office used exclusively for your self-employed business and multiply it by $5 per square foot up to a maximum of $1,500 per year.
• You can make the 20-step commute from your bedroom to your office in a little under four seconds.

But few Americans know about a surprising tax benefit available for Americans who live and work abroad. Claiming this exclusion when filing U.S. taxes from abroad can, in many cases, reduce one’s U.S. tax bill to zero. Regardless of where you worked last year, you need to file a federal tax return.

State Taxes for Out-of-State Workers

In this section, we’ll explore some of the key differences in state tax laws and how they apply to remote workers. The pandemic has accelerated the move to remote work and with it the possibility that those employees can live anywhere they please. That could mean a higher standard of living and a lower income tax rate for the growing number of remote workers. But in some instances it could mean having to pay taxes for a place where they now neither live nor work — or even being taxed on the same income twice. Some states have a higher income tax rate than others, and this can have a significant impact on your taxes as a remote worker. For example, if you live in a state with a low income tax rate but are working remotely in a state with a higher income tax rate, you may end up paying more in taxes overall.

Obih has seen eligible taxpayers avoid home office deductions because they’re afraid it’ll increase their risk of an audit. “Don’t have a fear of taking the deductions and the tax credits and benefits that are available to you just because of an audit,” she says. With the regular method, you’ll need to keep records of your eligible home office-related expenses such as homeowners insurance, mortgage interest, utilities and repairs. You’ll be able to deduct a percentage of eligible expenses based on the size of your workspace.

82% of executives believe employees have the know-how to navigate remote work tools

After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Imagine waking up on a Monday morning, sipping your coffee, and beginning your workday from the how companies benefit when employees work remotely comfort of your home. This scenario — once considered a rare perk — has become a reality for millions of people in recent years. In fact, IPSE research revealed that the number of workers operating exclusively at home increased from 5.7% in January 2020 to 43.1% in April 2020.

For example, the Child and Dependent Care Credit is available to remote workers who pay for childcare while they work, and the Earned Income Tax Credit is available to low-income remote workers. Additionally, some states may offer credits for remote work-related expenses such as home office expenses, internet and phone bills. As millions of employees are sent home or continue working remotely due to the coronavirus (COVID-19) pandemic, many taxpayers have experienced a commensurate increase in home office related expenses. In prior years, regulations and published guidance specifying the eligibility to claim home office deductions involved fact-specific tests and thresholds that were often difficult to satisfy and rarely yielded tax benefits. However, given the dramatic shift in the regularity and exclusivity of home office usage, there exists an opportunity to examine the possible tax benefits of qualifying home office expenses for 2020 and beyond. Navigating the waters of international tax laws is tricky for companies and remote workers.