In the wake of the COVID-19 pandemic, remote work has gone from being a perk offered by employers to standard operating practice for many companies. A survey of 2,053 U.S. adults conducted in October by The Harris Poll on behalf of the American Institute of CPAs (AICPA) showed that among the 58% of Americans currently employed, 42% have worked remotely during the COVID-19 pandemic and 25% are currently working remotely. The survey also revealed that more than half – 55% – of those who have worked remotely during the pandemic were not aware that a failure to change their state tax withholding to reflect their remote work situation could result in tax consequences.
“Working remotely can have tax implications that vary from state to state,” says AICPA Director for Tax Policy & Advocacy and state tax expert, Eileen Sherr, CPA, CGMA. “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.”
The AICPA survey also found that of those who have worked remotely during the COVID-19 pandemic:
When asked if their state has state income tax reciprocity with any other state, 42% of Americans were unsure.
Among those currently working remotely who have worked in a state other than where their pre-pandemic physical workplace was located, many have done so across multiple states (on average three) for relatively short periods of time. Most of these remote workers – 75% – have worked out-of-state for 60 days or less, and 51% have worked out-of-state fewer than 30 days total.
The survey also provided some optimistic results, noting that 67% of those who have worked out-of-state notified their employer of the state they are working in, 51% have tracked the number of days worked in each state and 41% have changed their state income tax withholding.
“Some remote workers are taking the right steps – notifying employers, tracking days and changing state tax withholding – but there are still too many that are not taking action, likely because they not aware they should be,” says Sherr. “Failure to take these steps could mean an unpleasant surprise at tax time in 2021. Remote workers should take steps now to track their remote work and try to educate and prepare themselves for what the upcoming tax season might mean for them. I strongly urge taxpayers to talk with a CPA now about their situation.”
The AICPA recommends remote workers take the following to prepare for the 2021 tax filing season:
AICPA has advocated for compliance burden relief and simplification for remote workers, addressing the inconsistent state and local income tax and withholding rules. It supports creating a uniform standard to simplify compliance with the various state and local income tax laws. “If there were ever a time for filing relief and simplification for remote workers, this is it. But for now, the sooner people start taking steps, the easier and less costly it will be for them next Spring,” noted Sherr.
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