Did You Work From Home This Year? Here's How Your Taxes Might Be Affected

Tax season is around the corner. Here's everything you need to know about remote work and your taxes—and potential deductions you could qualify for.

While there were a fair share of companies that had their employees come back into the office in 2021, remote work continued through the year—with many companies permanently rethinking their approach to remote work as employees expressed that they'd rather quit than return to the office full-time.

Many people have used the relative freedom of not needing to report to the office to live somewhere else for a time. They've moved in with family during the pandemic, moved to less crowded or less expensive areas, or tried a "workcation" for a chance of scenery.

Wherever you went during the pandemic, and for whatever reason, there are some consequences of working from a new location—that is, beyond the mail piling up and your plants wilting. Mainly, your taxes might look a little different, especially if you worked while living in a different state than the one where you're employed or have your permanent residence.

"A lot of people are moving around, so there could be more complicated tax implications," says Scott Taylor, CFA, a financial advisor at Northwestern Mutual. "There are certain states and certain situations where you could be double taxed."

Before you panic about your tax bill, though, remember that every tax situation is different. Chances are good you won't actually be double-taxed—aka, taxed for the same income in two different states, paying twice as much in taxes as you normally would. That said, you do want to be aware of which tax laws apply to you and your unique remote work situation. Plus, you could qualify for some tax deductions as a remote worker, too.

Ahead are a few top tax tips that all remote workers, particularly digital nomads, should keep in mind. Of course, as with all things tax-related, if you have specific questions, reach out to an accountant to discuss your situation.

You might have to pay additional taxes if you worked in a state different from the one you live in.

First, if you've been working from home in the same place you normally live, nothing will change for your taxes this year. You'll file your taxes as you always have and will either owe money, based on your withholdings for the year, or receive a tax refund.

If you have traveled to another state (or several) and worked while there, you may owe taxes in the state where you worked, even if you weren't there for the whole year. States have different rules for how long someone must be there before they're considered a resident for tax purposes.

Claire Grant, a financial writer at investment services company Stash, says most states count someone as a resident after they have stayed in that state for 183 days, even if their primary residence is in another state. Other states may have shorter or longer time ranges: If you've stayed in a state for an extended period of time, talk with an expert to see if you qualify to be taxed in that state.

If you do, there's still no need to panic. Many states have reciprocity agreements that allow workers to live in one state and work in another without getting double-taxed, so you can likely avoid owing more than you'd like. Taylor says you can work with a CPA to figure out how to do so.

Your tax bill might be higher if you moved from a state without income tax to one with it.

If you moved permanently, you should have changed the address associated with your HR department, bank accounts, driver's license, mail delivery, and other key accounts. Doing so makes your move official, so to speak, and means you no longer owe taxes in the state you moved from. If you did not change this information during your move, you may face some challenges.

Those who will see the biggest changes in their taxes are people who moved—permanently or temporarily—from a state with no income tax (these are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) to a state with income tax. Their taxes will be much higher than in the past, particularly if they did not adjust their withholdings accordingly.

"If you do move from a lower income tax state to a higher income tax state, I would make sure you're withholding the right amount of money," Taylor says.

Another group that should pay attention during tax season are those who moved from states with high income taxes to those with low or zero income taxes—and are trying to avoid paying state income tax.

"If you want to move there for a couple months just to lower your taxes, that's probably not going to happen," Taylor says.

States want to collect income taxes and will likely not overlook temporary moves. Unless you took steps to change your permanent residence, you will probably not be able to get away with paying no or less money in state taxes.

There are some tax deductions available for remote workers—though most are for self-employed individuals.

Working from home does make you eligible for some commonly overlooked tax deductions, too. Although, most of these deductions are for gig workers and people who are self-employed.

If you are self-employed and your home is your principle place of business, you can qualify for a home office deduction. But it has to be a part of your home you use regularly.

"It doesn't need to be a separate room; it can be part of your basement or anywhere designated as an office where you don't do anything else—so, your kitchen table wouldn't count," says Eric Bronnenkant, CPA, and head of tax at Betterment.

However, it doesn't have to be the only place you work. "For a gig worker or ride-share driver, a designated area where they handle all their administrative bookkeeping tasks would qualify as a principal place of business," Bronnenkant explains.

If you receive a W-2 from your company, you are not eligible for the same remote work deductions. But there are some options for you, too: "Mileage and travel expenses can be deductible if their company doesn't already reimburse for those costs," says Stepanie Ng, CPA.

If you're an educator working from home, you could receive a $250 deduction for expenses such as computer equipment. "Per the IRS, teachers can deduct un-reimbursed costs for computer equipment (and related services), software, supplementary materials, and supplies," Ng explains.

For W-2 employees looking to deduct expenses, Ng suggests keeping careful records in case of an IRS audit.

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