Remote Work Might Earn You a Surprise Tax Bill

As far as employment goes, last year brought more than its fair share of challenges for workers. It didn’t matter the industry or the stage of the career, the Covid pandemic shook the work landscape around the world. From mass layoffs and furloughs to work accommodations, if you worked in 2020, you probably saw your employment change in one way or another. And for many, that might mean you switched to remote work.

Thousands of businesses, both big and small, transitioned at least a portion of their workers to work-from-home setups between February and May. Of course, this provided a host of new challenges for businesses and employees. From security concerns to mastering Zoom video calls and managing child care, remote work turned many workers’ lives upside down.

Unfortunately, tax season in 2021 may continue turning lives upside down. Because if you worked remotely in 2020, you may find yourself owing a surprise tax bill you didn’t plan for.

Remote work can bring some serious tax complications along with it. And if you worked remotely last year, you need to understand them when it comes time to file your tax return. Failing to do so could result in some serious tax debt.

We’re going to walk you through the basics you should keep in mind if you worked remotely in 2020. Take this information and save!

Explaining the Remote Work Wave

While on its own, working from home won’t necessarily saddle you with a big tax bill, it can. Because in 2020, many changes correlated with remote work actually affect your tax obligation. Not all remote work is the same.

When many businesses closed their offices due to the coronavirus pandemic, people found themselves setting up their home offices. From desks to dining room tables, millions of office workers transitioned their day-to-day routines to their new WFH setups.

However, many workers ultimately went further than this. Over time, especially within large cities and areas with high costs of living, newly remote workers realized the potential to save money in greener—and cheaper—pastures. For some, that meant moving out of their expensive apartment for a cheaper apartment out of the city. For others, that meant moving in with family members across the country.

Why Remote Work Impacts Your Taxes

As far as income taxes are concerned, you owe two types: federal and state. Obviously, you pay your federal taxes to the IRS. For your state taxes, you may owe whichever state you perform your work in.

Here’s where things can get tricky. States want to get their hands on their taxes; that’s a given. So your tax situation gets more complex when you no longer physically work in the state you typically do. Depending on your home state and the state you worked in last year, you may have to file more than one state tax return.

It all depends on which states apply to your specific remote working situation. Each state has its own rules, and some states decide to apply these rules differently than others. But here are a two good rules of thumb:

  • Most wage income will be taxed in the state you work.
  • Your home state can tax your income, regardless of where you earned it.

For that reason, if you live in one state and work in another, either or both states might require you to file a return for that income. Fortunately, in most states you won’t actually have to pay twice. Your home state will often provide you with a deduction or a credit for any taxes you pay to the state you worked in.

And for 2020 specifically, 15 states have declared they won’t tax you if moved there temporarily during the pandemic. But this, unfortunately, leaves out other states that have tax laws designed aggressively for remote workers.

Don’t Be Surprised by a Tax Bill

So while you may not need to pay taxes in two states, if you worked in one state while calling another one home, you may at least need to file taxes in two states. Take these steps to avoid missing out on filing—or worse, paying a tax bill:

  1. Learn if your home state or work state taxes income. A handful of states don’t have income taxes, and knowing this will save you further headaches.
  2. If your home state or work state have income tax, go to the website of your home state’s tax authority and look for guidance. Repeat this process for the state you’re working in and understand their requirements.
  3. Reach out to a tax expert to answer any additional questions and provide additional help when filing your tax return.

Handling Your Taxes in 2021

At StopIRSDebt.com, we believe that remote work shouldn’t run you into trouble on your taxes. Unfortunately, the unique nature of work in 2020 amidst the pandemic meant a lot more people might find themselves in hot water over their state taxes than usual. With the right guidance, you can make sure you have a handle on your taxes during the 2021 tax season. No matter where you work.

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