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Regulation and Compliance > State Regulation

Remote Workers May Get a Surprise at Tax Time: AICPA

By Michael S. Fischer

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It’s another case of what you don’t know can hurt you, or at least take you by surprise.

Fifty-five percent of Americans who have been working remotely during the coronavirus pandemic were unaware that a failure to change their state tax withholding to reflect their remote work situation could result in tax consequences, according to a new survey commissioned by the American Institute of CPAs.

Related: Tax Planning in an Election Year

The survey showed that among the 58% of Americans who are currently employed, 42% have worked remotely since March, and 25% are still doing so.

“Working remotely can have tax implications that vary from state to state,” AICPA’s director for tax policy advocacy Eileen Sherr said in a statement.

“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 Harris Poll conducted the survey between Oct. 6 and Oct. 8 among 2,053 U.S. adults.

The survey also found that 47% of those who have worked remotely during the pandemic were not aware that each state has its own tax laws related to remote working.

In addition, 71% were not aware that working remotely in other states can affect the amount of state taxes owed. And 54% did not know that the number of days worked out of the state where their physical workplace is located may also affect the amount of state taxes owed.

When researchers asked respondents whether their state had state income tax reciprocity with any other state, 42% said they were unsure.

AICPA noted that among those currently working remotely who had worked in a state other than where their pre-pandemic physical workplace was located, many had done so across three states, on average, for relatively short periods of time.

Seventy-five percent of these remote workers had worked out of state for 60 days or less, and 51% had done so for fewer than 30 days total, AICPA said.

Related: Do High Earners Really Flee From State Tax Hikes?

The survey also provided some optimistic results. Two-thirds of those who have worked out of state said they had notified their employer of the state they were working in.

Fifty-one percent reported that they had tracked the number of days worked in each state, and 41% said they had changed their state income tax withholding.

Sherr said many remote workers had not taken action, likely because they were not aware they should. “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.”

Actions Remote Workers Can Take

AICPA offered several recommendations remote workers can take to prepare for the 2021 tax filing season:

  • Compile a list of any states you’ve worked remotely in during 2020.
  • If you didn’t track the number of days worked in other states, try to approximate the number of days worked in each state.
  • Depending on the state, income taxes may also be levied by cities, counties, municipalities, school districts or other jurisdictions. Make sure you also track this level of detail.
  • Consult a CPA for questions about how and where to file state taxes.
  • Make any changes needed to your state tax withholding. Incorrect state tax withholding may result in state taxes, interest and penalties when you file your taxes.
  • Going forward, continue to keep a record of all jurisdictions you work remotely in.

— Related on ThinkAdvisor: 

Michael S. Fischer

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