Working Out-of-State During the Pandemic? How to Avoid Tax Penalties.
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What is this episode’s focus on working out-of-state during the pandemic?
Here's your money briefing for Wednesday, December 9th. I'm J.R. Whalen for The Wall Street Journal. Earlier this year, we discussed the issue of higher tax bills potentially facing workers who relocated out of state during the pandemic. Today, we're revisiting that issue. We've got the latest information and important steps that you can take to avoid getting hit with a hefty tax bill and penalties.
Some states have made special rules around the pandemic. It adds a layer of complexity to a scene that's already hellishly complex.
Coming up, our tax reporter Laura Saunders will go over the things that will affect your tax bill and why it might be a good idea for your accountant to brush up on state tax laws. That's after the break.
If you've been working from home in a different state than your office, you could be in for a rude awakening. Taxes to pay on income in both states. But there are steps you can take now to be in line with tax laws and avoid interest and penalties. For more on this, let's bring in our tax reporter, Laura Saunders. Laura, thanks for being here.
Well, thank you for having me.
So the idea that telecommuting from another state can significantly affect your tax bill, do most people know about this?
You know, I'm afraid they don't, and it's important that they do. There was a survey by the Harris Poll that said that 70% of Americans were unaware that telecommuting from another state could affect their taxes.
Has this always been a rule among states, or is this some sort of a new special COVID regulation?
There have always been special rules around this, but especially important this year because so many people are working remotely from locations that are not anywhere near where their jobs are based. So all the rules become newly important this year. And in addition, some states have made special rules around the pandemic. It adds a layer of complexity to a scene that's already hellishly complex.
Yeah, right. Now let's get right into it. How could this impact what people owe when they do their taxes next year?
In lots of ways. You could wind up owing taxes to two states and filing returns in two states, and you might get a credit for one state against the other state and just wind up paying the highest taxes. But in some cases, I'm afraid that it might force people to pay taxes in two states without any offsets or credits. And in a very few cases, some people's taxes may go down. For instance, if you're based in Oregon, which has a high income tax, but you've been working in Washington state all year, which has no income tax, you might not owe Oregon taxes this year. So it's just it's hard to say what's going to be true for any one person. But there are a variety of outcomes. Many of them are not great, frankly.
Sounds like a bit of a mess. Is there going to be any clarity coming anytime soon?
In fact, there's a new Supreme Court case. We don't know if the court is going to accept it yet, but New Hampshire has sued Massachusetts in the Supreme Court saying that they're not happy about how Massachusetts is handling pandemic remote work. New Hampshire is a no-tax state. Massachusetts is a high-tax state. And about 80,000 people in New Hampshire commute to Massachusetts every day. And usually they owe Massachusetts taxes. But they've been working at home all year, and residence is important. And so the governor of New Hampshire is not happy that all of his... His residents are still paying their Massachusetts taxes this year. We'll see where that goes. If the Supreme Court takes that case, it could have very wide ripple effects if they decide in favor of New Hampshire and the commuters who are telecommuting from New Hampshire.
OK, but it's not as if people had a choice. You know, there was a whole new set of corporate rules and everybody needed to get out of the way of a rampant pandemic. Doesn't that matter?
Well, New Hampshire thinks it does. They're really mad. They said, you know, our workers are not allowed to come to the office in Massachusetts. They're not driving on the highways or crossing the bridges.
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