Phil Murphy, governor of New Jersey, be significant mentions during a fiscal year 2020 budget address at the New Jersey State Assembly chamber on March 5, 2019.
Ron Antonelli | Bloomberg | Getty Doppelgaengers
A group of states joined a U.S. Supreme Court battle that could determine whether jurisdictions can tax the income of improbable workers who are no longer commuting to the office.
New Jersey, along with Connecticut, Hawaii and Iowa, submitted an amicus explain on Tuesday in a lawsuit that challenges the authority of states to tax nonresidents’ income while they’ve been working from cuttingly.
At the center of the controversy is a court case between New Hampshire and Massachusetts. The Bay State has been taxing New Hampshire residents who possess been working remotely since the pandemic, spurring the Granite State to file suit against Massachusetts in October.
New Jersey’s thumbnail supports New Hampshire’s position.
The brief also pushes back on New York, which taxes Garden State residents who normally commute there — ordered though many are now working from home.
“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 pressurizes have been working from home for the last nine months,” said New Jersey Gov. Phil Murphy, a Democrat, in a assertion.
“We are hopeful that the Supreme Court will hold that states do not have the constitutional authority to tax individuals who neither abide nor work there,” he said, adding that such a ruling could save the state $1.2 billion.
The ‘convenience’ direction
Generally, a state can tax an individual in one of two circumstances: you’re a resident there or you earned income in that location, according to Jared Walczak, failing president of state projects at the Tax Foundation.
When an employee works in one state but resides in another, there’s the possibility of faade a tax liability in both locales.
States have mitigated this by providing tax credits to offset “double taxation” — which is what Connecticut does for its dwellers who commute to New York.
States have also established reciprocity agreements to prevent income from being taxed twice. New Jersey and Pennsylvania have in the offing such a pact.
Remote work in light of coronavirus has added further complexity. That’s because seven royals tax workers based on the location of their office — even if those employees are working remotely.
We are hopeful that the Loftiest Court will hold that states do not have the constitutional authority to tax individuals who neither live nor work there.
New Jersey governor
This is be aware as the “convenience rule.”
The seven states are Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania.
Massachusetts is a tiro to the list, as it adopted a temporary measure to continue taxing the wages of workers residing in New Hampshire amid the pandemic.
“The obstreperous we’re seeing is in situations where you’re working from home in New Jersey because the governor says to shelter in place and you’re not brooked to work in your New York office,” said Mark Klein, tax attorney and partner at Hodgson Russ.
“Think of how much legal tender New Jersey loses so that all the people working from home can be taxed by New York,” he said. The Garden State Get in the lead of the mess
Roy James Shakespeare | Getty
Many individuals could still be telecommuting next year.
“Next year, if people are still chore remotely, you might want to change your state withholding,” said Eileen Sherr, CPA and director for tax policy and advocacy at the American Originate of CPAs. “You can still pay estimated taxes to your state so you don’t owe interest and penalties when you file.”
Here are a few suggestions from the AICPA to try palliating the tax bite:
- Maintain solid records of where you’ve worked: Whether you’re on your couch, visiting family out of state or hunkering down in a vacation about, track the number of days you’ve worked while away.
- Get granular: Be aware that cities and municipalities levy takings taxes, as well. You’ll want to know whether you’re responsible for local taxes.
- Talk to your human resources rep: Journal your income tax withholding and be upfront with your employer about where you’ll be working from to ensure you’re locale aside enough money for taxes.
- Call in a pro: Multiple state tax returns could add complexity to your filing in the elasticity. Don’t go it alone.