It may be the case that you did your job from another state for part of 2021 – say, to try it out or enjoy a number of months with different scenery and a more favorable climate. Either way, the place you did your job could impact your taxes.
So as you gear up to file a return for 2021, you’ll need to make sure you know the rules that apply to you.
How many tax returns do you need to file?
Regardless of where you worked last year, you need to file a federal tax return. But you may also be required to file more than one state tax return.
The problem, however, is that determining whether you need to file another state tax return can be complicated. That’s because different states have different rules. Some states allow non-residents to work locally for a certain amount of time without creating a state tax liability or need to file a return. If you worked in more than one state in 2021, you may want to consult a tax professional to know what you’re dealing with.
Of course, no matter what, you’re generally required to file a tax return in the state you live in. So if you live in Pennsylvania, for example, you can bank on having to file a Pennsylvania tax return for 2021. But if you worked for three months in a different state, you may have to file a separate return.
Will you be taxed twice?
One thing you need to know – before you panic – is you can’t be taxed double on your income just because you did your job from two states. But working in two states could create an extra tax liability for you.
Most states offer a tax credit that offsets your liability if you’re not a resident there. But that credit may not fully offset the amount you need to pay to the second state you lived or worked in. It all depends on the states in question and what their respective tax rates are.
There are also a number of states that don’t impose a tax liability if you specifically work in a neighboring state. In that case, you may avoid extra taxes.
Get help if the situation is murky
If you worked remotely last year but did so from a single state, then you don’t have to worry about this complex issue. But if you spent a significant amount of time working remotely in a state other than your home state, then it’s probably best to consult an accountant or tax professional to get advice.
Working remotely certainly has its benefits, and it’s an option that’s allowed many people to pad their savings due to not having to spend money on commuting. But in some cases, it could create a tax headache. Rather than attempt to work through the rules yourself, enlist the help of someone who can guide you through the process and make sure you’re filing the right returns.
Source: USA Today