As the filing season approaches, remote workers in the United States face a potential double tax threat due to a little-known rule impacting those employed by companies based in certain states. Residents working remotely for firms headquartered in Connecticut, Delaware, Nebraska, New York, and Pennsylvania could find themselves liable for income tax in both their employer’s state and the one they reside in, creating an unexpected financial burden.
Double Tax Dilemma
Americans working remotely for companies based in specific states may encounter a unique tax challenge this year. The issue arises when an employee’s employer is in a different state than where they live and work. The states of concern include Connecticut, Delaware, Nebraska, New York, and Pennsylvania.
Illustrating the problem, Jared Walczak from the Tax Foundation explained the situation in New York. If an individual works for a New York-based company and isn’t assigned to a non-New York office, they could owe New York income taxes on all their earnings through that company. However, if the individual physically works in another state, that state might not provide a credit for New York taxes.
While the prospect of dual-state taxation is concerning, many workers in this situation will likely receive a tax credit that mitigates the impact of this potential double charge. The tax credit helps offset the liability, offering relief to affected individuals.
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Tax Season Reminder
To address the issue, 30 reciprocal agreements exist across 16 states and the District of Columbia, canceling out the problem of double taxation. Workers covered by these agreements can avoid the burden of paying taxes in both states, ensuring a fair and balanced tax outcome.
To avoid issues, remote workers for companies in the states should consult tax advisors before filing. On January 29, the 2024 tax season begins. Understanding the ramifications and getting competent counsel will help ensure a smooth and financially healthy filing procedure.
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