Employee Tax Implications for Working from Home

When many employees went from working in an office to remote we were not thinking of the tax implications of working from home. Today we are currently in the 9th month of working from home. If you have not considered what your 2021 tax filing will look like now would be a great time to do it to understand the tax implications.

Employees Can Not Write Off Office Expenses

If you are a W2 employee you can not write off home office expenses. Home office expenses can only be deducted for 1099 contractors. The Tax Cuts and Jobs Act of 2017, which went into effect in 2018, eliminated the federal write-offs previously allowed for unreimbursed business expenses and home offices, along with most other miscellaneous itemized deductions.

Remote Employee and Tax Presense

Remote work raises the question as to whether an individual or business established a tax presence in a different state. This issue is highly state-dependent so you will need to do your due diligence in regards to your state’s policy.

A company’s presence/nexus determines whether a state can levy taxes on the business and its workers. If your employees are working remotely in a different state than the one your business is in, this could give your company a presence there. Your employees may be subject to tax withholdings, and your company may need to comply with that state’s tax obligations.

It gets even more complicated if an employee usually lives in one state but is temporarily working in a different state. This is currently happening due to COVID-19.

Prepare for Potential Tax Implications

To prepare appropriately here are some items that you should be aware of.

Your employees:

Track the time spent working at a temporary remote location
Monitor their tax withholdings on each paystub
Communicate to you, the employer, if they are planning to continue work from home after it is safe to return to the office

You, the employer: