COVID-19 inspired work-from-home measures could affect your taxes
For many taxpayers, 2020 has seen them work from home rather than at the office, which may continue for quite a while longer. For a significant percentage of those taxpayers, that may mean working from home in a different state than where their office is located. Some will need to purchase supplies and equipment and incur other expenses to do their jobs. Any significant change in one’s life can have tax consequences, and that is also true when shifting to working from home. This move toward working at home can have both federal and state tax consequences.
Home office expense considerations
- Prior to the Tax Cuts and Jobs Act enacted in 2017, unreimbursed employee business expenses were deductible as an itemized deduction on Form 1040, Schedule A. Since the enactment of the Tax Cuts and Jobs Act, those expenses are no longer deductible
- Self-employed persons can still deduct home office expenses on Form 1040, Schedule C and supporting schedules
- Taxpayers can seek reimbursement from their employers for home office expenses, and those reimbursements are not taxable to the employee if there is adequate documentation to constitute an accountable reimbursement plan
- About ten states have statutes requiring employers to reimburse employees for necessary expenses as a result of their job duties. It may be difficult to determine the amount of some of those expenses and the extent to which they were necessary
State nexus tax considerations
- Most states have an income tax base nexus for taxation both on where the taxpayer is a resident and where the income is earned
- Some neighboring states, most commonly in the Northeast and Midwest, have entered into reciprocity agreements under which the taxpayer is only taxed in the state of residence
- When a taxpayer is now working from home in a different state due to COVID-19, the change could affect where the income is taxed due to the nexus rules
- About fifteen states have enacted provisions stating that they will not change their nexus taxation as a result of a taxpayer temporarily working from home due to the COVID-19 pandemic
- A proposal in Congress would require all states on a temporary basis to only tax income in the state of residence
Let’s not forget teachers
- The $250 above-the-line deduction for out-of-pocket teacher expenses on the federal income tax return is available to teachers. Although the statutory language states that the equipment and materials must be “used by the eligible educator in the classroom,” most tax experts believe that this language could apply to a virtual classroom as well as a physical one
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Wolters Kluwer provides the expertise you need
Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help explain the various tax issues associated with working from home.
To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact: