Millions of employees went remote when the pandemic first hit in 2020. Many never returned to the office — and more and more workers continue to make the transition. According to a Future Workforce Report, the number of remote workers is expected to nearly double from pre-pandemic level in the next five years.
If you’re currently telecommuting, it’s important to get up to speed with the latest tax developments that can impact your 2021 tax return, especially if you’ve been working in a different state from your usual workplace. Consider the following questions:
- Did you change your state of residency? If you relocated to a new state while maintaining your remote employment, be sure to update HR with your new address ASAP, as this can change your tax withholdings. An employer can be penalized for not withholding when they should have. And depending on where you live, some states offer withholding credits if taxes are paid or withheld in other states.
- Where are you paying income tax? If you’re working from a different state than where your company is licensed, your state taxes may or may not be affected. Each state has its own set of rules. For example, states like New York and Connecticut tax remote workers based on the location of their employer’s office, regardless of where the work is completed. On the other hand, if your office is in New York, but you move to California while telecommuting, you risk both states taxing your income.
- Are you eligible for home office deductions? For tax years 2018 to 2025, the Tax Cuts and Jobs Act (TCJA) excluded W-2 employees from the home office deduction. The deduction is reserved for self-employed remote workers who use their home regularly and exclusively for business during the tax year. Your home office could be a single room, a portion of a room or a separate building on your property that’s solely used to conduct business. If you qualify, there are two methods for calculating the deduction. Under the actual method, calculate the potential deductible amount by prorating your expenses with your business use. If you prefer not to keep track of your home office expenses, you can deduct $5 for each square foot of office space, up to a maximum of 300 square feet.
It’s a hot topic — and we can help you navigate it
Remote work offers many benefits, but also the responsibility to evaluate your new tax situation. As always, be sure to consult a trusted advisor for specifics on your individual circumstances before you file your 2021 return. Don’t hesitate to reach out to the professionals at Magone & Company for tax assistance. Give us a call today at (973) 301-2300.