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Could You Get Taxed for Working from Home?

Could You Get Taxed for Working from Home?

In light of the current coronavirus (COVID-19) pandemic, more people than ever are working from home.

As a part of the new normal, many remote workers have said they would like to continue the trend for upwards of 2-3 days a week on a permanent basis, even after the pandemic is over.

In light of this fact, some industry experts are suggesting that the prospect of working at home should come at a cost to employees.

Corporations such as Deutsche Bank suggest a tax of upwards of five percent of a worker’s salary for each day spent working from home.

Experts say that this would help to subsidize the cost of lost wages of those who are unable to work from home, helping to provide them with grants intended to help them to ease the burden.  The plan is intended to help provide a support system for frontline workers and those in other industries who do not have the opportunity to work from home, given the nature of their jobs.

In addition, analysts believe the fee levied would help to make up for some of the economic activity lost by those no longer needing to commute to an office.  This includes transportation costs, dry cleaning, and meal purchases that would be no longer necessary for those who can work from home.

One study notes that the tax could raise as much as $48 billion a year in the United States alone. (Note that this proposal has been discussed in business and economic circles, but is not a piece of proposed legislation yet.)

Studies maintain that those working from home have a tendency to earn higher than average incomes, concluding that the five percent tax being proposed would not significantly impact employers or employers. The idea is that the tax represents funds that would ordinarily be spent on items such as transportation, lunch, and clothing, leaving remote workers no worse off financially than if they were still commuting to an office each day.

The tax would be assessed when companies allow their employees to work from home voluntarily as opposed to at the directive of government officials or other agencies.

The current proposal would exclude low-income workers and those who are self-employed.

How are remote workers currently taxed?

Currently, employees who work from home either temporarily or on a permanent basis are typically taxed in a similar way to those who go into an office environment each day. 

However, if an employee works lives and works in a state that is separate from where their office is located, they may now be subject to additional tax obligations. 

States usually require employees to pay taxes on income that is earned in that state.  If you are now working from home in another state versus the state where your employer’s office is located, you may now owe taxes in both the state where you live and the state where your employer is located.  In many cases, you will be able to receive a credit for the amount paid in your non-resident state on your resident state tax return.

Employers may now also be subject to additional taxes.  If are living and working in a state where the employer does not ordinarily have an established presence, your work in that state may be enough to establish presence, subjecting the company to potential additional income and sales tax obligations.

The coronavirus is changing the way we do business, potentially on a permanent basis.

Keep an eye on the news for more discussions on taxes and working from home in the coming months.

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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