Remote Worker Taxation

Remote Worker Taxation: The Tale of Competing State Financial Gain

By FOCUS, a Leonine Business

Working remotely from the comfort of home, possibly in pajamas, has become a reality for many Americans who continue to struggle with the continued effects of the coronavirus. For some, the commute across state borders for their employment has turned into a commute from the bedroom to the home office, with a detour at the coffee pot for some caffeine-induced fuel. In the before time (pre-coronavirus), remote work was a luxury provided by few employers. In the new normal, in an attempt to limit spread of COVID, non-essential employees have been working remotely, in many cases, since March.

Historically, workers who live in one state and commute across state lines to their employer have been taxed by both states, with some home states providing tax relief in other areas to limit the tax burden on a single employee. Working across state lines has not been a new issue and states have provided reciprocity in many cases.

According to the New Jersey Division of Taxation, New Jersey offers tax credits equal to the amount a worker has paid in the state of New York. However, this is not the case for New Jerseyans who work in Pennsylvania, as state agencies have their own interstate tax agreement that allows individuals to pay taxes in the state of their residence. New Jersey residents have paid roughly $1 billion to New York, which has been forgiven on the backend by New Jersey. Many New Jerseyans have argued that their money could be better spent in their home state by providing funding to public school aid or supplementing property tax relief programs like the Homestead Benefit, which is funded by income tax revenue.

New Jersey has taken the first steps in reviewing their structure for remote worker taxation with the introduction of SB 3064. The bill, which would require the state treasury to report on the fiscal impacts of the current tax structure, passed the Senate on October 29 and was received in the Assembly on November 5.

The ongoing battle over remote worker taxation has also played out between New Hampshire and Massachusetts. Just this past month, New Hampshire Republican Gov. Chris Sununu directed the state Department of Justice to file a lawsuit against Massachusetts after the state’s Department of Revenue finalized a plan to tax out-of-state workers while working remotely. The Department of Revenue published and approved a final rule imposing the state’s 5.05 percent income tax on the earnings of New Hampshire residents.

States will continue to overturn and scour the metaphorical couch cushions for any possible funding sources as COVID continues to diminish financial and economic stability across the board. As second and third waves of the pandemic ravage the country, tele-work will most likely be the new normal for non-essential employees as we head into the new year and the one-year anniversary of #quarantinebody. There will likely be a rise of tension between interstate agencies as they continue to push for their respective constituent needs, while eyeing the benefits of possible increased tax revenue.

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FOCUS is a full-service 50-state government relations, strategic consulting and information services firm. Specialized services include regulatory and legislative tracking and reporting, coalition and association management, issues management, government affairs department audits, public policy research and a 50-state and global lobbyist network. Get in touch with us to learn more!