Working from home has become the new normal, but remote work’s safety, flexibility, and freedom can have some nasty tax implications. If you don’t plan, you could face an unexpected tax nightmare.
This year, states are phasing out a series of safe harbors that eased some of the burdens on remote workers during the Covid-19 pandemic. As a result, remote workers may now be subject to personal income taxes in states where they aren’t based, and their employers will have to withhold and remit payroll taxes and register for various other taxes.
Double Taxation
Working remotely can present some tax challenges whether you are an employer or an employee. Those challenges include complicated international cross-border tax issues that can lead to double taxation.
Double taxation is a common tax problem faced by businesses and individuals worldwide, and it can cut your profits and impact your overall bottom line. However, there are ways to avoid it, and your small business should consult an experienced tax professional for advice on navigating this challenging area of the law best.
Many countries have signed treaties that prevent this form of double taxation. These agreements eliminate the possibility of two countries taxing the same person or company on the same income.
The United States has signed several of these agreements, and the European Union has concluded Social Security Totalization Agreements (SSTAs) with 28 countries. SSTAs typically eliminate the potential for double taxation by ensuring that an individual is only liable to pay social security taxes in one country.
In addition, some states have reciprocity arrangements with neighboring states, allowing residents of one state to work in the other without owing taxes. These agreements may not completely relieve you from the double taxation threat, but they will often at least reduce your taxes by a significant amount.
Taxes in Multiple States
If you’re a remote worker who moved to another state or worked remotely for part of this year, you may owe taxes in multiple states. This happens because a few states allow you to be considered a “part-year resident,” meaning that your income tax filings will differ from those of people permanently residing in one state.
Some states will help you avoid double taxation by allowing you to claim a credit on your resident return for the taxes you paid to a nonresident state. However, this rule has some exceptions, and you must work with a qualified tax professional to navigate your home and work states’ laws.
The IRS has published a comprehensive guide explaining how remote workers can be impacted by the tax rules of their home and work states or the tax implications of remote workers. It’s a great place to start for any questions about your remote work situation, and learn to avoid costly mistakes this year.
There are also several situations where an employer may be responsible for paying income taxes to an employee’s home state even though the employee has no nexus or business presence in the state. These include if the company owns or leases a property in that state or if the employee works from there on an occasional basis.
Interest Charges
One of the most cost-effective ways to improve your financial standing is by paying off your credit card balance in full each month. However, your credit card may accumulate interest quickly if you need to be more disciplined. Fortunately, there are many ways to avoid this costly mistake.
One uses a credit card that allows you to pay in multiple small payments throughout the billing cycle. You can also opt for a rewards credit card that awards you with points and miles for purchases you make, which can be redeemed for cash or goods of a similar value.
For this last option, you’ll want to research to make the best decision for you and your family. Numerous credit cards are on the market, and your credit history is a personal matter that must be evaluated with your budget. The most important part of this equation is finding the right fit for your lifestyle and financial goals, so you can reap the benefits of the perks of being a remote worker.
Taxes on Travel
Many different types of taxes can affect the cost of your travel. Taxes on the journey can include airport facility charges, air and ground transportation fees, passenger facility charges, and ticket tax.
Fortunately, many of these are regulated by governments and are not openly revealed to travelers. However, it is essential to know what type of taxes you will be paying on your travel, as they can affect your overall budget and may make the difference between a good trip and a bad one.
In addition, remote workers may be subject to additional taxes in certain countries if they work abroad on a temporary visa. These taxes can be based on the time spent in a country and how much money is earned there.
According to the IRS, a travel expense is tax deductible only if it is incurred for business purposes and is reasonable. Reasonable costs include airfare, lodging, meals, and other travel expenses necessary to conduct your business duties.
Those who are self-employed and travel regularly should be aware of the Tax Cuts and Jobs Act, which eliminates individual wage earners’ ability to deduct unreimbursed business expenses. It is also essential to be mindful of state taxes that apply to travelers and how they impact your total tax bill.
