Tax Planning

New Jersey Files Amicus Brief in Supreme Court Case Involving Remote Workers' Income Taxes

New Jersey Files Amicus Brief in Supreme Court Case Involving Remote Workers' Income Taxes

The global pandemic has changed our lives in countless ways, and one is the enormous number of people who are no longer commuting to their offices or job sites. While working remotely has introduced both challenges and newfound conveniences, workers who live out of state from where they work may find that the shift is presenting an enormous tax headache, and that is the subject of an upcoming case about to be heard in the U.S. Supreme Court.  The state of New Hampshire has filed a lawsuit against the state of Massachusetts over its taxation of New Hampshire residents who are now working remotely from their Massachusetts-based jobs. The court’s decision will impact many around the country, and that is why the states of Connecticut, Hawaii, Iowa and New Jersey have submitted an amicus brief in support of New Hampshire’s position.

The suit questions whether states have the authority to tax nonresidents’ income when they work from their home. As referenced above, the issue is not limited to actions by Massachusetts. The state of New York has long taxed commuters from New Jersey and has continued to do so even though they are no longer traveling across the border. According to New Jersey Governor Phil Murphy, this is having a significant impact on both state revenues and on individuals. “In the course of this once-in-a-century pandemic, hundreds of thousands of New Jersey residents who typically commute to New York and pay New York taxes have been working from home for the last nine months,” he said. “We are hopeful that the Supreme Court will hold that states do not have the constitutional authority to tax individuals who neither live nor work there.”  While the decision will significantly impact New Jersey taxpayers, if the court sides with New Hampshire it will save New Jersey $1.2 billion in lost tax revenues.

Cross-State Taxation Before the Pandemic

Prior to the pandemic, states could tax nonresidents if they earned income there. This put employees who commute in a position of having to pay income tax in two states. Some states, including Connecticut in relation to New York workers, have created special tax credits designed to respond to the costs of double taxation, while others like New Jersey and Pennsylvania have turned to special reciprocity agreements to address the issue.

These long-standing fixes have been challenged by the surge of workers who are working remotely. In the states of Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania, “convenience rules” establish that workers pay taxes no matter where they are. They are taxed based upon the address of their employers’ office. The issue is particularly ripe for legal action in Massachusetts, which added itself to this group of states as a temporary measure in direct response to losing tax dollars from New Hampshire residents who had commuted into the state before the pandemic struck.

For many workers who are trapped into working at home because of shelter-in-place orders, the new tax rules add even more financial impact, and the same is true of the states in which they live. This explains why New Jersey is joining with New Hampshire in the court case: it is currently providing a credit to its residents because New York is taxing them while they work from home (at the same time that they are expected to pay New Jersey income tax). And this is to say nothing of the added complications of employees who may be required to file income taxes in multiple states because they work in one state, live in another, and are sheltering in place and working in a third.

Plan Ahead

If the pandemic has altered your work situation such that you are telecommuting from another state, you should be paying attention to this issue and planning ahead. There may be a need to adjust your withholding, or possibly to pay another state that you are not currently aware that you owe. To prepare yourself and determine what your liability is, follow these steps:

  • Use an online tracker to keep a record of where you are when you’re working. Make sure that you document how many hours you work in each state.
  • Determine how each of the locations where you work treats income taxes for its workers and for people who commute to where they are. Include cities and municipalities in your research, as some impose additional taxes.
  • Your company’s human resources department should be able to help you determine whether you are at risk for a tax shortfall in any of the locations where you have a tax liability, and if so to help you adjust your income tax withholding accordingly.
  • If you have been working in a cross-state way and are concerned that this may impact you, contact your tax professional ahead of time for help.
share this post
Search for matches...
Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
22 reviews

California

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts