While a huge number of American workers have shifted from office settings to remote work situations amid the COVID-19 pandemic, a recent survey conducted by AICPA and The Harris Poll shows that many are unaware of the potential state tax implications related to their new working conditions.
The October survey of 2,053 U.S. adults showed that among the 58% of Americans employed at that time, 42% had worked remotely at some point during the pandemic and 25% were currently working remotely. However, more than half of those who had worked remotely during the pandemic (55%) were not aware that a failure to change their state tax withholding to reflect their remote work situation could result in tax consequences.
Further, 47% of respondents were not aware that each state has their own tax laws related to remote working, 71% were not aware that working remotely in other states can have an impact on the amount of state taxes owed, and 54% were unaware that the number of days worked out of the state where their physical workplace is located may also impact the amount of state taxes owed. When asked if their state has state income tax reciprocity with any other state, 42% of survey participants were also unsure.
Those state tax implications could be significant. The survey found that among those working remotely who had worked in a state other than where their pre-pandemic physical workplace was located, many had actually done so across multiple states (three on average) for relatively short periods of time – 75% had worked out-of-state for 60 days or less and 51% had worked out-of-state fewer than 30 days total.
Despite the lack of awareness regarding many tax implications, however, the survey also found that 67% of those who had worked out-of-state did in fact notify their employer of the state they were working in, 51% had tracked the number of days worked in each state and 41% had changed their state income tax withholding.
“Working remotely can have tax implications that vary from state to state,” says AICPA director for tax policy and advocacy Eileen Sherr. “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 AICPA continues to advocate for compliance burden relief and simplification for remote workers to address inconsistent state and local income tax and withholding rules, including the creation of a uniform standard to simplify compliance with the various state and local income tax laws.