Business personal property tax compliance is a frequently overlooked, though potentially problematic, issue resulting from a remote employee in jurisdictions where the employer is not currently located. Because business personal property taxes are usually imposed and administered at the local government level, compliance difficulties may arise even when the remote worker is located in the same state—but a different county or other taxing district—than the employer’s office location. Business personal property taxes may be owed on company-owned property, typically as of January 1 of the tax year, on items such as laptops, printers, desks, or other items. Frequently, however, taxing jurisdictions have adopted de minimis thresholds where tax may not be owed on property valued at less than a specified amount. If the tax is owed, the employer must self-report (“render”) its property within a jurisdiction.
If the taxpayer elects to use the simplified method, they cannot deduct any actual expenses for the business except for business expenses that are not related to the use of the home. The taxpayer also cannot deduct any depreciation (including any additional first-year depreciation) or Section 179 expense for the portion of the home that is used for a qualified business use. When using the simplified method, treat as personal expenses the mortgage interest, real estate taxes, and casualty losses. A change from using the simplified method in one year to actual expenses in a succeeding tax year, or vice versa, is not a change in method of accounting and does not require IRS consent. If you’re an employee at a “regular” job, but you also have your own side hustle, you can claim deductions for business expenses and the home office deduction for your own business — if you meet all the requirements.
Nontax Issues—Labor and Employment
For example, if you live in Rhode Island as a permanent resident, you’ll have to pay taxes on all income, but if your employer is based in Nebraska, you’ll also have to pay income taxes from that state. However, if you also have a side hustle where you make money while residing in Rhode Island, you don’t have to pay taxes on that particular income to Nebraska because you didn’t make that money there. If your employer operates out of another state, you typically won’t have to pay two sets of remote work taxes. Often, employee-based income taxes are based on the state where you generate income, not where the revenue itself is generated.
Also, keep in mind that some states set higher standards for minimum wage and salaries for exempt employees than what is set in the FLSA. If the company is based in one state and a remote worker is in another state, different minimum wage rates may apply, according to a blog by the website The HR Team. Businesses that have nonexempt employees—workers who are entitled to earn the federal minimum wage (currently $7.25 per hour) and qualify for overtime pay—must adhere to timekeeping requirements under the FLSA.
Can I use the same space for my W-2 job and side gig and still claim the deduction?
If you work for a California-based company, you may be required to pay state income tax on your remote income. California has a state tax rate of 13.3% on the how companies benefit when employees work remotely first $120,000 of taxable income and 8.84% on taxable income above $120,000. Independent contractors are those paid outside of regular staff requirements.
- If you use more than one home for business, you can file a Form 8829 for each home or use the simplified method for one home and Form 8829 others.
- The court rejected the taxpayer’s argument, stating that because Philadelphia gave a credit for the Wilmington tax paid by the taxpayer, the wage tax passed the so-called Complete Auto test—a reference to Complete Auto Transit Inc. v. Brady, in which the U.S.
- In prior years, regulations and published guidance specifying the eligibility to claim home office deductions involved fact-specific tests and thresholds that were often difficult to satisfy and rarely yielded tax benefits.
- The home office tax deduction covers expenses for the business use of your home, including mortgage interest, rent, insurance, utilities, repairs, and depreciation.
- PTINs are relatively easy to come by, so it also behooves you to find a tax professional with credentials or years of proven experience.
- Hybrid workers fit into many of the same categories as full-time remote employees.
- After remote work surged during the pandemic, fewer employers now feel the need to lure talent with the promise of working from home.
Eligible employees are those who meet a certain salary level and annual hours threshold. A qualified employee must also “perform at least 50 percent of the person’s service for the business at the qualified business site.” If your remote worker lives in another state, the likelihood of them conducting work onsite https://remotemode.net/ 2 weeks of every monthly may not be realistic. Several states—including Arkansas, Delaware, Nebraska, and New York—have the “convenience of the employer” rule, which says if an employer requires an employee to work out of state of residency, tax withholding is taken only in the state where the employee is based.
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Employees who seek the best possible remote work location for themselves may conflict with their employers’ financial decision to operate in a location with tax credits like these. Businesses have become very adept at securing local tax credits
and financial incentives related to their facility decisions. However, the
increase in remote work has created problems for eligibility of these same
benefits. Incentive programs by nature are intended to entice businesses to increase
employment and investments in a particular state or jurisdiction. Most
incentive program regulations specifically require an employee works within the
state, and often requires the majority of their work be performed at the
designated local facility.