Being able to work remotely may be beneficial for organisations in reducing office expenses, but it can result in complexities for state income taxes. Remote workers are to keep careful track of their earnings and expenses and consult a tax professional regularly to stay compliant.
Remote workers can minimise the amount of state tax they owe from their paychecks by taking steps to understand the full slate of deductions and credits available to them. Dedicating the time to keep detailed records, research their eligibility for different deductions, and utilise reciprocity agreements can help remote workers stay in compliance with state taxes.
Deductions for Home Office Expenses
Deductions for home office expenses reduce some of the taxes attributable to working at home, such as mortgage or rental property insurance, heat, electricity and maintenance, and a percentage of homeowner or renter insurance that corresponds to worker space, according to the IRS. Workers who are W-2 employees must meet certain criteria to qualify for this deduction.
A remote worker might be able to take the mileage and other transportation expenses paid on business-related travel, which includes fuel for the car and lodging and meals away from home on business-related trips. Mileage should be logged or receipts for expenses should be kept so these can be taken as tax deductions.
On the other hand, employees who must travel between states for work may be taxed by income tax by both their home state and their working state, depending on the particulars of their state and their employment. Ultimately, it is a good idea to seek professional advice to better grasp the nuances of this situation.
Deductions for Telecommuting
For example, as a non-traditional employee, you could deduct the cost of cleaning services or noise-cancelling headphones for video calls. Courses and certifications that enhance your skill set for your work could also qualify. The self-employed independent worker can also deduct health insurance premiums, as well as half of the payroll tax paid under Social Security.
The amount of payroll taxes you pay will vary by state, and to cover them you’ll need to have tax nexus in each of the states where your remote staff live. Nexus is established in most states when a business has a physical presence or economic enough ties to trigger sales and use taxes.
Keep a detailed record of your working remotely expenses which will reduce your tax liability of working remotely. For proof of claim, receipts or other equivalent evidence must be kept for the expenses claimed against. You may need to maintain and update these records throughout the year as required.
Deductions for Business Travel
So, yes, the remote worker who is travelling for business might be eligible for taking some deductions – airfare and expenses of lodging, mileage expenses and some meals consumed when away. A business trip is usually said to consist of being absent from your ‘tax home’ (or permanent place of business) more than 183 days at any one time when sleeping (which is usually over 180). An important goal of the remote worker should be knowing where they stand for individual tax obligations – which vary state-by-state, country-by-country, on a case-by-case basis, according to the treaties of different countries – and for this reason I’d recommend a professional tax advisor to provide clarity on obligations.
Using tax deductions can slash tax liability for remote employees, and this means substantial savings at tax time. To maintain statistics to maximise tax deductions and glean maximum savings from tax obligations, workers should meticulously observe every business expense they incur during the year and keep an ordinary ledger that clearly documents every expense incurred. Moreover, employees who use their own vehicles for business should also maintain a ledger that clearly records every expense incurred in business motoring, especially with respect to a mileage log.
Deductions for Equipment
Remote working-related expenses such as computers, mobile phones, printers, scanners, internet and phone bills, and any travelling relating to meetings with clients, conference calls or any other form of business event, are all tax-deductible expenses. Upgrades or further courses, even to your own company training (if it enhances your skillset in your role or expands upon your skillset), are all expenses that can be written off as well.
(For remote workers, it’s particularly important to grasp this aspect: it means that employment taxes must be reported and withheld – and, in some cases, withheld – by your employer both in your home state and in any jurisdictions in which there is a sales tax nexus, or in which you work under an international tax treaty.)
Out of country employers of remote workers will want to work with a global payroll or EOR service to stay compliant with all relevant tax codes and avoid any fines or penalties as a result of non-compliance.
