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Working from home has become more of a norm, and there appears to be a culture sprouting up in support of it. However, I think some people do not go into contracting fully informed. For instance, most independent contractors pay more in federal income taxes in general. That's just one example. What I'd like to discuss today or bring to everyone's attention is state taxes and working across state lines.
Many Americans have sought shelter in other states. Some found jobs where they could work from home, or they already had a mobile job when they moved. One thing that never crossed my mind was how they would be taxed. Would they still be on the line to have to pay taxes to the state from whence they came? For instance, if you left New York right before things got bad for another state, would you still have to pay New York state taxes even if the company that you telecommute for isn't even based in New York? For New Yorkers, there's a controversial rule called the "convenience rule". Simply put, if you had a job based in one state, but you live and work in another out of convenience rather than being required by your employer, then you'll owe income tax to the state where the job was based. Which I find that to be fair.
This is where it could get scary though:
In other words, someone with a New York-based job who lives and telecommutes from another state still owes full income tax to New York on that compensation. If the other state taxes that income as well and doesn't give a credit for the New York tax -- as some states don't -- the worker will likely be double taxed.
New York currently has the most aggressive enforcement on their tax law, but other states have a convenience rule as well:
Arkansas, Connecticut, Delaware, Nebraska and Pennsylvania.
If it weren't for such an influx of new telecommuters out there, I wouldn't be all too worried. I would think the worst could only happen in certain cases. Now, I think many will be hitting up the Supreme Court to make a decision on this after a large number of people are unfairly double taxed by two different states. It feels like an unfair cash grab by the states involved, and they're taking advantage of a loop hole. No citizen should have to pay double in state taxes. How else agrees? Does anyone else have any insight from personal experience?