Taxes on Remote Work

By John Schachter, EA

Let’s say it’s a global pandemic and your regular workplace has shut down, for good or for the time being. You are working from home, or trying to, amid the distractions and stresses of truant children and wayward laundry. How will your taxes change as a result? Are there write-offs you can take? And what if your income has crashed? Are there supports for you in the Tax Code?

Here are some answers to those questions, and more, from the point of view of an employee or self-employed person, with a special comment for employers. As always, please let us know if you have questions about how any of the provisions discussed applies to you.

Try to get reimbursed for out-of-pocket expenses you incur in connection with your job or freelance business. Reimbursement is tax-free for an employee, provided the employee submits a proper expense report, and can be canceled out with deductions for a self-employed person.  It puts the pain where it belongs, with the boss or client, and makes you whole.

Expenses that cannot be reimbursed can generate tax benefits, but not for payroll workers. Too bad! A self-employed person, on the other hand, can take deductions for ordinary and necessary expenses of carrying on a trade or business. So independent contractors should keep track of such expenditures: they help three ways at tax time, reducing federal and state income tax and self-employment tax.

Every business is different. But it is common for self-employed persons to pay for office supplies and connectivity, for trade publications and professional education, for health insurance, for hardware and software and for office-related costs. You can deduct a portion of the cost of operating your home to the extent you regularly and exclusively use a portion of the home as the principal place of business or for storage of inventory. Plopping your laptop on the kitchen table won’t count, since you don’t exclusively use the kitchen table for work. Employees can be reimbursed tax-free for home office costs if the home office is maintained for the convenience of the employer. That’s tax talk for, you must have the home office to do your job – typically, because there is nowhere else for you to work.

Workers and the companies they serve might have nasty surprises this year around state taxes. Say that, in the Great Before, you worked in Massachusetts, commuting from your home in New Hampshire. Now you must work from home exclusively. Massachusetts says you still owe tax on your salary, even though you are not working in the Bay State anymore. It can get worse. Let’s say you work in state A normally, but have decamped to state B. State B will tax you, because you are working in state B. But state A will ALSO tax you, because state A has a law that taxes telecommuters whose employer is in state A. Usually, a state like state B will give you a credit against its tax for tax paid on the same income in another state. But not this time: under state B law, state A has no taxing jurisdiction, and so no credit is allowed. Some states, for example Maine, have instated recent regulations that can alleviate this double taxation. Check with us if you think you may be exposed to double taxation. Also consider trying to get made whole by your company  if they sent you home to work and thus exposed you to double tax.

Employers can get their own shock upon learning that, by locating employees at their homes in a state, they have thus triggered their own state filing requirement there. It’s analogous to opening an office in a new state, even though the “office” is somebody’s living room and the telework was required by government shutdown. Some states are waiving taxing rights on employers in these situations, but not all of them. Check with us if you now have workers in new states.

Remote work is here to stay. Workers tend to like it, and businesses are finding ways to accommodate it.   If you or your company are part of this transformation and the tax aspects are vexing, please contact John Schachter + Associates Inc.