Many taxpayers could face surprise bill over remote work misconceptions, study finds
Many remote workers did not understand how their location could impact their tax liabilities
The coronavirus pandemic has shaken up much of Americans’ financial lives this year – and it could bring tax surprises next year for many workers who are not aware of the repercussions teleworking can have.
More than half of taxpayers who have been working remotely throughout the pandemic are not aware of any tax-related consequences that could apply to them if they do not update their withholding to reflect their work location, according to a new study by The Harris Poll and the American Institute of CPA’s.
Another 47% were not aware that each state had separate laws governing its remote work liabilities, while 71% did not know working out of their state of residence could impact taxes owed.
“The sudden and unplanned increase of many employees working remotely due to the pandemic has left many of them unaware of their current state tax liabilities and any additional steps they need to take now and at tax filing time,” AICPA Director for Tax Policy & Advocacy and state tax expert, Eileen Sherr, said in a statement.
2020 TAXES COULD BE HEADACHE FOR SOME REMOTE WORKERS
Many workers may be faced with different circumstances this year if they opted to work remotely in a state other than their typical, primary residence.
The AICPA study found that most people who said they were working remotely did so across an average of three states.
These individuals may have to file three state returns (unless the states issue temporary guidance otherwise).
Michael Corrente, managing director at the independent CPA firm CBIZ MHM, told FOX Business that people who are working under different circumstances should contact their human resources or payroll department to let them know what has changed. That’s because the state where your employer is having your taxes withheld may need to be adjusted – a situation that could pose a problem for both you and your employer if it is not corrected by next year.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
And whether some people owe more in taxes next year will depend on how high the state taxes are where an individual is currently working vs. their home state.
In many cases, an individual can receive a credit in the resident state for taxes paid to the nonresident state. But if taxes are higher in the nonresident state, a worker could end up owing a little extra.
In some cases a remote worker’s resident state may not provide a credit for taxes assessed in the employer’s state because the income is actually earned in the state of residence.
Workers may want to keep a log of where they physically were and for how long, Corrente added, because if an audit were to be initiated the burden of proof ultimately falls on the taxpayer.