As the tax-filing season commences, American remote workers face a potential dilemma: the specter of double taxation due to a little-known rule affecting employees in five specific states. Working for companies based in states like New York could trigger dual-state income tax liabilities, leaving employees grappling with unexpected financial burdens.
Photo from: LinkedIn
Understanding Double Taxation
Remote employees across the United States are confronting the possibility of being taxed by two states simultaneously. This scenario arises when individuals work for companies headquartered in states divergent from their residential state, creating a complex taxation conundrum. Five states, including Connecticut, Delaware, Nebraska, New York, and Pennsylvania, implement taxation policies based on the employer’s location, irrespective of the employee’s physical presence.
In response to worries about double taxes, Tax Foundation vice president of state programs Jared Walczak explained how it works in New York. Regardless of location, New York employers must pay income taxes on their employees.
However, employees may not receive tax credits from their residential state, compounding the financial burden.
READ ALSO: Kentucky Department Of Revenue Will Start Processing Refunds Next Week
Mitigating Tax Liability
Fortunately, reciprocal agreements between states offer some respite for affected employees. These agreements, totaling 30 across 16 states and the District of Columbia, help alleviate the burden of dual taxation. However, in the absence of such contracts, individuals must file tax returns in both states, potentially subjecting them to taxes in the state with the higher income tax rate.
As the 2024 tax season unfolds, employees navigating remote work arrangements are urged to seek guidance from tax professionals. With tax season commencing on January 29 and concluding on April 15, understanding the intricacies of dual taxation is crucial for remote workers to ensure compliance and mitigate financial implications.
READ ALSO: Clorox Agrees To $5.65 Million Settlement In Pine-Sol Class-Action Lawsuit – Here’s You Need To Know
