Tax Day has come and gone, but now that we’re more than halfway through the year, you might be wondering how working remotely for the majority of 2020 might impact next year’s tax returns. We spoke with Tina Salandra, a certified public accountant and principal at Numerical, a New York–based accounting firm, for some insight on how working from home could affect your taxes.
HOME OFFICE EXPENSES ON FEDERAL TAX RETURNS
If you’re a salaried employee who began working remotely this year, you may have purchased some items to make your home more conducive to office life. While a new desk chair and computer monitor have hopefully eased the transition, you most likely won’t be able to write off those expenses, Salandra says.
“In most cases, employees working from home due to COVID-19 will be considered as temporarily working outside their employer’s office,” she says. “This means they will continue to be taxed as if they were still working in their employer’s office location.” The same goes even if your home is located in a different state from your employer’s office: You will continue to pay income tax in the state where your employer operates.
These rules, however, only went into effect recently. “The 2018 tax law changes eliminated employee business deductions, which included expenses for home office,” Salandra says. So in short, your federal tax return likely cannot include any deductions for home-office expenses.
HOME OFFICE EXPENSES ON STATE TAX RETURNS
However, you may have better luck when it comes to your state tax return. Some states still allow employee business deductions, Salandra says. If your state does allow them, some potential write-offs may include:
Furnishings (desk, chair, lamps, file cabinet)
Technology (laptop, monitor, printer)
The cost of moving files and equipment from your employer’s office to your home
A percentage of your mortgage or rent that’s equivalent to the amount of space your office represents within your home
Make sure you consult with a local tax professional to determine whether you are eligible to take home-office deductions and, if so, what you can itemize, as deductions may be subject to certain thresholds and may be dependent on your income.
IF YOU MOVED RECENTLY
The benefit of extended remote work means that you can do your job from pretty much anywhere you have an internet connection. And with the uncertainty of the pandemic continuing for the foreseeable future, many employees have started considering whether to make any temporary moves permanent. This, of course, would affect how you pay your taxes.
“Most states will require the employer to withhold payroll tax in the state where the employer’s office building is located,” Salandra says. “However, the state where an employee’s home office is located could also impose income tax and require the employee to file in two states. This should not result in double tax, as the employee’s home state usually gives a tax credit for taxes paid to other states.” For instance, Salandra notes this is common in New York, as many employees commute to the New York City from their homes in nearby states.
If you and your employer come to an agreement that your move will be considered permanent for the foreseeable future, your company could classify you as working and living in the same state, Salandra says. Note that if this arrangement is made, your employer will most likely be subject to both payroll and business taxes in that state.
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.