Page 20 - Leisure Living Magazine: Spring 2021 Edition

Work-From-Home Tax Implications
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from another state. Working out of state from the employer can create physical nexus which means the employer will be responsible for the taxes imposed from the employee’s location. This could include taxes on income, gross receipts, and sales and use from both the city and county level.
Some states have waived these nexus rules or have adjusted in light of COVID-19 includ- ing Minnesota, Indiana, Ohio, New Jersey, Mississippi, Pennsylvania, North Dakota, and the District of Columbia. Check with your CPA to ensure you’re following your state’s remote worker nexus law.
Labor and employment law – Changes in an employee’s location across state lines can result in new wage and hour rules, termination of employment considerations, noncompetition agreements, trade secrets protections, and paid sick and family leave rules. Employers will want to be mindful of worker’s compensation insur- ance as states usually require employers to regis- ter and obtain premiums to cover the employee in that state. Additionally, unemployment insur- ance is also required by states for employees even if the employer operates in a different state.
Remote worker supplies – Employers who purchased items and provided them to workers in order to move operations remote may deduct those expenses on their tax return. As these sup- plies are usually purchased for non-compensa- tory business reasons, employees do not need to pay taxes on them. Employers who reimbursed employees for purchased supplies deemed “ordi- nary and necessary” should have accountability plans and policies in place to protect the employ- ee from taxation.
Consistent and accurate communication with employees during this time is key in order to avoid employer and employee tax violations as tax updates continue to be released regarding nexus and tax responsibilities. Be mindful that employee tax obligations are not the employer’s responsibility, so remind your employees to stay vigilant about their personal tax situation.
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Tax implications for employees working from home double-taxation – Double-taxation can be a large burden for employees living in one state and working in another. Double- taxation occurs when the resident state doesn’t provide an employee with a credit on their return for taxes paid to their employer’s state. States where this can occur include New York, Arkansas, Connecticut, Delaware, Nebraska, and Pennsylvania.
Home office deductions – The Tax Cuts and Jobs Act (TCJA) of 2017 removed the itemized home office deduction for unreimbursed expens- es exceeding 2% of AGI. This means that even though new remote employees have had to pro- cure supplies during the pandemic and they were not either directly purchased by the employer or the employee was not reimbursed, those expens- es are not tax deductible.
Self-employed individuals are still eligible for the home office deduction if they are purchas- ing their own supplies. If a contracting client purchases supplies for them, those would be tax deductible for the client, but not the self-em- ployed individual.
Relocation – If you’ve permanently relocated across state lines during the pandemic, you will need to file tax returns for both states in 2021. Even temporary relocations of six months or longer may require tax returns to be filed in two states. It is likely states will be monitoring these moves closely in order to recover lost revenue.
Employers who have never operated with remote workers prior to the pandemic could face significant headaches come tax time. Likewise, employees who are working in one state and liv- ing in another could face large tax bills in 2021.
Consult a professional for guidance. Payne Nickles & Company, Certified Public Accountants and business advisors, offers assis- tance with your obligations as an employer or individual taxpayer, reach out to them at 419- 625-4942 (Sandusky office) or 419-668-2552 (Norwalk office).
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.
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