Taxation of Remote Workers

What you need to know as your prepare your taxes

By Jon S. Chamberlain, CPA

Partner, Chamberlain & Associates, CPAs, LLP

VCEDC Board Member

With the COVID pandemic forcing many employees to work remotely, many are wondering what impact this may have on their income tax situation.  Most tax and accounting questions have two answers – “It depends!” or “What do you want it to be?”

This question falls under the former.  Certainly, if your remote work location is in the same state as your original work location, nothing will change for you.

Those that could be impacted the most are employees that would be working in a state that is different from their residence or their original work location.  Most states will impose income tax based on where it is earned and not where you reside.  A worker from Wisconsin that works out of the corporate headquarters in New York would pay taxes to both states - New York and Wisconsin.  Fortunately, the equalizer would be the fact that the employee would get a credit on their Wisconsin taxes for any tax paid to the state of New York.

Likewise, an employee residing in one state decides to work from their second home in another state could find themselves in a similar situation.  They could be taxed on their income in the state where they are working and in the state of their primary residence.

There are other rules that may eliminate the need to file returns for multiple states.  Wisconsin has reciprocity agreements with Illinois and Michigan so that any employees residing in those states would not have to pay tax on income earned in Wisconsin.  There is no longer a reciprocity agreement between the states of Wisconsin and Minnesota.

Working remotely may also result in remote workers incurring more expenses – computer, office supplies, cell service, internet service, etc.  As an employee, you are no longer able to deduct these expenses as employee business expense deductibility was eliminated in 2017.

As this can be a complex situation and each person’s situation may bring different circumstances into the mix, my third favorite answer to this question is always the best advice to give - please consult your tax advisor for how your particular situation may be impacted.

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