Wolters Kluwer Tax & Accounting Looks at Tax Issues Related to Working From Home

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.

Media Contact

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:

BART LIPINSKI
847-267-2225
Bart.Lipinski@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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