What’s worse than paying taxes? Being taxed twice on the same income.

A hodgepodge of state tax rules is causing confusion, huge hassles, and bigger tax bills for many taxpayers who worked remotely last year in a different state than their employer.

In the most egregious situations, taxpayers are taxed twice, once by the state in which they worked and once by the state of their employer. Other taxpayers must file multiple tax returns and may owe prorated taxes to multiple states.

“When the state laws were released, they weren’t designed to accommodate today’s mobile workforce,” says Eliot Bassin, a partner at Bregman and Company in Stamford, Connecticut, who represents a number number of people facing a requirement. pay state taxes twice on the same income – once to their home state of Connecticut and once to their employer’s New York state. “There is a substantial amount of money at stake for many people.”

Taxpayers owe income taxes to the state in which they work, whether it is their home state, the parent’s home where they are staying during the pandemic, or even the


Airbnb

they rent. Home states also have the right to collect income taxes from residents, but states generally strive to avoid double taxation. Some 17 states have reciprocal agreements to avoid taxing people’s income twice, and others allow a tax credit to fully offset the tax paid to the state where the income was generated.

For example, if you live in Wisconsin and work in Illinois, the states have a reciprocal agreement, so you only pay taxes in your home state and Illinois waives claiming your taxes on Income. This is the simplest scenario for taxpayers.

It gets a little trickier if you live in Wisconsin and work in Colorado — the two states don’t have a reciprocal agreement. You pay Colorado income taxes, and Wisconsin gives you a credit to offset the amount you paid in Colorado on your resident tax bill.

“Your home country’s tax rate may be higher, you may still owe something, but you won’t be taxed twice,” Richard Auxier, senior policy associate at Urbans Tax Policy Center -Brookings.

State tax systems, while often clunky and outdated, were fairly uncontroversial until the pandemic hit. As workers moved from business hubs like New York and Boston to set up remote offices across employers’ state borders, state debt collectors saw either a big potential problem or a big windfall, according to the side of the move where they were.

A number of states – New York, Connecticut, Massachusetts, Delaware, Pennsylvania and Nebraska – have refused to waive their tax rights on the earnings of employees who normally work within their borders but work remotely across state lines.

The result? Potentially two tax liabilities. Or for residents of states like New Hampshire with no income tax, they face a single tax bill from the state they normally work in, say, Massachusetts, even though they earned their income in their State of origin in 2021.

These stubborn states have what’s called an employer convenience rule, which was designed long before the pandemic to retain the right to tax income for workers who worked remotely on occasion because it suited the workers. Even though many people have had no choice but to work remotely during a deadly pandemic, states are still enforcing the rule.

Delaware temporarily lifted its remote worker income demands during its Covid state of emergency, but reinstated the policy in July of last year.

Massachusetts did the opposite. He enacted a temporary convenience rule in 2020 that was in effect until September of last year, so taxpayers will get little relief from Bay State on their 2021 taxes.

Although these issues first appeared on 2020 tax returns, some states attempted to mitigate the issue earlier in the pandemic, but have since become less accommodating.

Consider a taxpayer who lives in Connecticut and works in New York. Normally, the taxpayer would pay income taxes in New York, and Connecticut would allow a credit for New York taxes on residents’ tax returns.

When commuters stayed home in 2020 after business hours, Connecticut had the right to collect taxes from residents working and earning income from home. New York dug in, refusing to give up its usual tax revenue on those workers.

For 2020 tax purposes, Connecticut allowed resident teleworkers who paid New York City taxes to continue claiming a tax credit. But for 2021, the state also dug in — and now New York and Connecticut together tax remote worker income twice.

Mark Boughton, commissioner of the Connecticut Department of Tax Services, says the source of Connecticut’s taxpayer problem is that New York exceeds its collection efforts. “If you live and work in Connecticut, you have to pay Connecticut state taxes. Your beef is not with Connecticut. Your beef is with New York.

The New York State Department of Tax and Finance did not return calls seeking comment.

Connecticut adopted the convenience rule in 2019 in response to New York’s as a “defensive measure” and applies it only to New York and other states that have a convenience rule, Boughton says. He added that the door is open to policy changes if New York looks into its policy.

New Jersey also has a convenience rule and took the same lenient stance as Connecticut in 2020, but ended its “relief period” on Oct. 1.

“The situation is unfair, no one should have to pay two taxes on the same income,” says Jared Walczak, vice president of state projects at the Tax Foundation. “It puts people in a difficult position where they could seek to avoid paying two rounds of income tax, but may find themselves guilty of tax evasion by doing so. It could create scofflaws among tens of millions of ‘Americans.

The problems won’t go away once the pandemic passes, says Patrick Skeehan, senior director of state and local taxes at Grant Thornton. “Remote work is not going away. We are only beginning to see these issues heat up.

Ultimately, uniform state rules are needed, Walzcak says. “Either all the states agree on the policy or the federal government imposes one, which it has the power to do.”

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