A Remote Worker’s Guide to Taxes and Expenses

Due to the recent global crisis, remote working has become the norm in the business sector. While it’s not necessarily new to the industry, the majority of workers were forced to adopt this working setup due to the circumstances. Therefore, it’s only natural for one to be unfamiliar with the inner workings of the setup. This is particularly true when it comes to taxes and expenses. 

After all, tax rates vary from place to place. For a remote worker who works for a company yet resides within a different location, taxes become incredibly complex. As for expenses, the company usually covers the costs of various necessities of their employee. Since a remote worker doesn’t work at any location, let alone a work office, claiming home office expenses are perplexing. 

In other words, if you’re a remote worker, taxes and expenses are a lot different from what you’re used to. On that note, this article will serve as a guide to help you breeze through the process, starting with taxes. 

How Should a Remote Worker Handle Tax Returns? 

As stated earlier, remote workers may reside in one location while working for a company located at a different area. One common problem among remote workers is what tax rate should they pay? Should they calculate taxes using the rate of their home address or the rate of the company’s physical address? In this case, you have to pay your income tax according to your home’s local rates. 

Suppose you used to work at the main office in State A, but because of the pandemic, you had to work at home in State B. If that’s the case, you have to conform to the tax rates of State B. That would mean if State B has higher tax rates than State A, you’ll lose more money to taxes than usual.

Contrarily, if State B has a lower tax rate, you’re essentially reducing your tax bill. But of course, there’s always an exception to this rule. This is true for those who work for a company based in one of the five states that follow the convenience of the employer rule.

Introduction to the Convenience Rule for Taxes 

The convenience of the employer rule, better known as the convenience rule, states that remote workers must calculate taxes according to the rate of the state at which the employer resides. 

Using the previous example, assuming the convenience rule applies to you, instead of conforming to the taxes of State B, you’ll have to report your taxes according to the rate of State A. Now, you might be wondering if you have to pay taxes to State A and State B. The answer to that is yes and no. 

Typically, if you’re under the convenience rule, you’ll be exempt from paying taxes at the state where you live. But there may be instances where they won’t exempt you from their taxes. 

When that happens, you may belong to a handful of individuals that are obliged to pay taxes twice. To avoid such cases, you must notify the state of this matter so they can withhold your tax liabilities. It’s also advisable to consult a tax professional if things don’t go well initially. But as previously mentioned, this rule only applies if your employer resides in the following states: 

• Delaware 
• Massachusetts 
• Nebraska 
• New York 
• Pennsylvania 
• Connecticut 

So far, there are only five states that uphold the convenience rule. Connecticut is a special case as it only applies the rule if you reside in one of the five states that apply the same rule. 

What You Need to Know About Employee Expenses 

As mentioned, when working in an office, a company usually covers the costs of various necessities in the office. For example, if the equipment malfunctions, they pay for the repair fees. Similarly, if they want you to use a particular application, they pay for that app. Some employers may even provide their employees with additional payments to cover transport expenses. 

However, as a remote worker, you don’t have to pay for transport nor do you have access to the company’s equipment. So, how should you deal with your expenses associated with work? 

Working From Home: Claiming Your Expenses 

If you’re working at home, a company would generally allow you to reimburse expenses made for the sole purpose of maintaining the work environment. These may include the following: 

• Internet connection 
• Mobile phone service 
• Online subscriptions to services and software 
• Additional equipment (e.g., scanners and printers) 
• Home office furniture (e.g., chairs and desks) 

Take note that not all employers are obliged to cover your expenses. Some may ultimately reimburse your expenses, while others may return only a portion of it. You’ll even find many companies that deviate from the norm and disagree with reimbursing employee expenses. However, in some states, reimbursement is a law, so employers have no choice either way.

Remote Workers’ Taxes and Expenses – Final Words 

While filing your tax returns means you’re losing money, claiming expenses allows you to save money. One can say that taxes and expenses are two sides of the same coin. If there’s one thing similar to the two, it’s the fact that you should handle both differently if you’re a remote worker. But with this guide, dealing with taxes and expenses should be a lot easier.

For more articles like this, be sure to check out the tax policy section of the site.