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Susan Tompor: Tax shocker awaits remote workers who hit the road

Susan Tompor, Detroit Free Press on

Published in Business News

Many people who suddenly ended up working remotely during the pandemic in 2020 found themselves plopped at their kitchen table in front of a laptop.

But more people than you might imagine hit the road and worked out of someone else's kitchen or spare bedroom, maybe visting a relative or a summer home, in another state.

So what happens now at tax time?

"Working remotely in another state may — and often does — subject the individual to tax in that state," said James O’Rilley, CPA and tax director for Doeren Mayhew in Troy, Mich.

And some times, it could even drive up your overall tax bill, O'Rilley said. If a higher tax rate is paid to the state where a Michigan resident is working remotely, for example, you could get a tax credit in Michigan but that credit is only limited to Michigan’s state income tax rate of 4.25%.

State tax rules for remote workers vary

 

Many people have absolutely no idea that each state has its own state tax laws relating to working remotely.

Seven out of 10 people polled by the American Institute of CPAs did not know that working remotely in other states could affect the total amount of state taxes they owe.

And slightly more than half did not know that the number of days worked out of the state where their physical workplace is located may also impact the amount of state taxes owed.

"Your tax situation is probably a lot more complicated in 2020 than in the past if you have been in multiple states," warned Eileen Sherr, director of tax policy and advocacy at the American Institute of CPAs in Washington, D.C.

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