In the upcoming tax season, some Americans might find themselves facing an unexpected challenge – the possibility of being hit by “Double State Income Tax” due to a little-known rule affecting remote workers in five states: Connecticut, Delaware, Nebraska, New York, and Pennsylvania.
Dodging the Double State Income Tax Bullet: How Remote Workers Can Navigate Tax Season Challenges in 2024!
If you work for a company based in one of these states but reside and work in a different state, you could be on the hook for “Double State Income Tax” in both places. For instance, if you work for a New York-based company and aren’t assigned to a non-New York office, New York could claim income taxes on all your earnings through that company, regardless of where you physically work.
The issue arises because not all states follow the same tax rules. While some states tax people based on where they work, others tax based on the employer’s location. The five aforementioned states fall into the latter category, potentially causing a “Double State Income Tax” burden for remote workers.
However, there’s a glimmer of good news – most affected workers can receive a tax credit that offsets this “Double State Income Tax” charge. This credit is facilitated by reciprocal agreements between states, with 30 such agreements existing across 16 states and the District of Columbia. These agreements help cancel out the impact of “Double State Income Tax.”
Navigating the Double State Income Tax Dilemma: Key Tips for Remote Workers in 2024 Tax Season!
In cases where no reciprocity agreement exists, some states offer a credit for taxes paid in the employer’s state. Yet, this requires filing tax returns in both states, and the worker may end up paying taxes to the state with the higher income tax rate.
In order to manage this complicated scenario, it is advisable for remote workers employed by organizations in these five states to get help from a tax specialist as the 2024 tax season approaches. Remote workers may be subject to “Double State Income Tax.”
Remember, tax season begins on January 29, and the deadline for filing is April 15. While the IRS Free File service is already open, it’s essential for affected individuals to understand their specific tax situation and take necessary steps to avoid any surprises come tax time.