Dec 01, 2020
By Dylan Boevers, Staff Accountant at Terry Lockridge & Dunn
The American Institute of CPAs (AICPA) found that seven in ten workers are unaware that working remotely in other states may impact the amount of state taxes owed. They conducted a survey showing that among the 58% of Americans who are currently employed, 42% have worked remotely since March, and 25% are still doing so. Almost 50% of those who worked remotely during the pandemic were not aware that each state has its own tax laws related to remote working.
The AICPA has several recommendations remote workers can take to prepare for the upcoming tax season:
- Compile a list of any states you have worked remotely in during 2020.
- Track the number of days worked in other states.
- Depending on the state, income taxes may also be levied by cities, counties, municipalities, school districts or other jurisdictions. Make sure you also track this level of detail.
- Make any changes needed to your state tax withholding. Incorrect state tax withholding may result in state taxes, interest and penalties when you file your taxes.
- Going forward, continue to keep a record of all jurisdictions you work remotely in.
Depending on your specific tax situation, you may need to file two state tax returns: a resident return and a non-resident return. If your W-2 form lists a state other than your resident state, then you will file two state tax returns; a resident return to the state in which you reside, and a non-resident return to the other state listed on your W-2 (the state where your company is located).
Iowa residents are subject to personal income tax on their entire income, wherever earned. Therefore, an Iowa resident’s income tax return should not be affected by temporarily working remotely in Iowa or another state. However, if you are a nonresident of Iowa who normally works in Iowa but is now working remotely in another state or who normally works outside of Iowa, but is temporarily working remotely in Iowa, you may need to adjust your income apportionment or Iowa income tax return filing requirement.
There will likely be more guidance on this issue in the following months. If you would like to discuss your specific situation, please reach out to any of the accountants at Terry Lockridge & Dunn. They can be reached in Cedar Rapids at 319-364-2945, or in Iowa City at 319-339-4884. We can meet via Zoom, conference call, or if necessary, in-person at either office.