Remote work, since the pandemic, has transformed the traditional office landscape. Thanks to technology, employees can now work from anywhere, blurring the lines between home and office. This new flexibility offers many benefits, but it also raises important questions about the tax implications of remote work.
As remote work becomes more commonplace, both employees and employers need to understand the tax rules that apply to this evolving work arrangement. Here are some tax implications for you and your tax advisor to keep in mind:
- State Income Tax Considerations. If you live and work in D.C., Northern Virginia, or Maryland, you may be subject to taxes in both locations. *** Here’s how it works:
- Tax Home vs. Work Location: Your “tax home” is typically where you live, while your “work location” is where your employer’s office is located. If they are in the same state, there’s usually no issue. However, if you’re working remotely from a different state, you may need to file income tax returns in both states.
- Reciprocity Agreements: Some neighboring states have reciprocity agreements that allow residents of one state to work in another without paying income tax to the work state. These agreements can simplify the tax situation for remote workers.
- Tracking remote work days. For tax purposes, it’s essential to keep accurate records of where you work. The number of days you work in different states can impact your tax liability. Some states have a “day counting” rule that triggers tax obligations if you work there for a certain number of days within a tax year.
- Deductions for home office expenses. The tax implications of remote work also extend to home office deductions. For tax year 2013, the IRS introduced a simplified home office deduction method, allowing eligible taxpayers to deduct $5 per square foot of their home office space, up to a maximum of 300 square feet. For those who qualify, this deduction can help offset some of the costs associated with remote work, such as internet, utilities, and office supplies. However, to be eligible, your home office must be used exclusively for work purposes, and you must meet specific criteria outlined by the IRS.
- State sales tax obligations. If you’re running a remote business from your home, you may also have to consider state sales tax obligations. Many states require businesses to collect and remit sales tax on sales made to customers within the state. If you’re conducting sales remotely, you’ll need to navigate the rules and regulations regarding sales tax in both your home state and any other state where you have customers.
- Employer considerations. Employers also face tax-related challenges with remote work arrangements. They must determine their tax obligations in the states where remote employees reside and work. Additionally, they may need to address payroll tax issues, unemployment insurance, and compliance with various state labor laws.
- Impact on tax credits and deductions. Remote work can affect eligibility for certain tax credits and deductions. For example, the Earned Income Tax Credit (EITC) and Child and Dependent Care Credit (CDCC) depend on factors like income and work-related expenses, which may change when working remotely. Similarly, retirement account contributions and deductions may be impacted by changes in income and work arrangements.
- Seek professional guidance from a tax advisor. Navigating the tax implications of remote work can be complex, especially if you work in multiple states or have specific deductions and credits in mind. To ensure compliance and optimize your tax situation, seek the assistance of a qualified tax advisor.
Remote work offers flexibility and convenience, but it also brings tax considerations. Understanding the tax implications of remote work is essential for employees and employers to avoid surprises come tax season.
A.K. Burton, PC, has experienced accountants who can help you do your tax preparation and remote work. Call us at (301) 365-1974 for a consultation.
We serve the Bethesda, Rockville, and Montgomery County, MD area.
*** For more information on marriage and taxes, visit the Tax News website.
Every year brings a panoply of new tax laws, passed by the United States Congress. Some of these laws are easy to implement. However, some other new tax laws can be complicated. In any case, it can make tax preparation for most people even more difficult as most people don’t keep track of the laws.
Accountants spend many hours studying the latest tax laws. We even attend webinars and conventions to learn more about these laws. It’s always a challenge! Some new tax laws make us scratch our heads while others seem to be commonsensical.
Here are several notable new tax laws to keep in mind when doing your tax preparation:
- Charitable Tax Credit increase. The America Rescue Plan deduction returns to the nonrefundable status of $2,000 per qualifying child and is limited to dependents under the age of 16.
- More charitable deduction changes. During COVID-19, taxpayers could take an above-the-line charitable donation tax deduction, meaning they are claiming the standard deduction and an additional deduction for a charitable donation. Single filers may deduct up to $300. Married couples filing jointly may deduct up to $600.
- New reporting requirement for third-party settlement organizations. This deals with Paypal, Venmo, Cash App, and other third-party payment companies. TPSOs were required to file a Form 1099-K if customers processed 200 or more transactions and received a minimum of $20,000 or more in payments. This law deletes the transaction requirement and requires Form 1099-K for any account holder who receives at least $600 in payments for goods and services. Recently, the IRS delayed implementing the new law until 2023. Though not mandatory for 2022, you may get a Form 1099-K as these third-party payment companies prepare for the upcoming change.
- Child and Dependent Care Credit Decrease. These are deductions for qualified childcare services so that you can work, you can receive a childcare credit for some or all expenses. The IRS did reduce the child and dependent care credit cap in 2022. It decreased from a maximum of $8,000 in 2021 to a maximum of $2,100 in 2022.
- Employer-sponsored retirement contributions increased. The contribution limit for elective deferrals to 401(k), 403(b), most 457 plans, and the Thrift Savings Plan increased to $20,500 for 2022. The total amount that can be contributed to a plan by you and your employer combined increased to $61,500. The catch-up contribution for taxpayers aged 50 and older stayed at $6,500.
- Clean Vehicle Credit eligibility change. If you bought a new electric vehicle after August 16, 2022, it had to have had a final assembly in North America to get the $7,500 credit. This requirement was added as part of the Inflation Reduction Act of 2021.
Some of these tax law changes may affect your tax preparation for your 2022 tax returns. If you have questions, you can consult the IRS. We highly recommend that you consult your tax advisor or accountant for your tax preparation and filing.
A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you get the ball rolling with year-end tax planning for your small business. Call us at (301) 365-1974 for a consultation.
We serve the Bethesda, Rockville, and Montgomery County, MD area.
*** For more information on IRS Tax Brackets visits the Tax Foundation website.
The holiday season has come and gone but “tax season” is always with us. This tax season may be as complicated as ever due to the pandemic and a flurry of new tax laws that came down from Congress.
Your expectations for your personal and business tax preparation may have to be adjusted, particularly with working with the IRS (always a challenge) and the child and dependent tax credit. Here are some facts to keep in mind as you get your documents in order to file for 2021:
- The Internal Revenue Service (IRS): Delayed and behind
- E-filing begins January 24, 2022: The IRS is already way behind in preparing for this tax season and is still working on 2019 and 2020 tax filings. These disruptions are blamed on the ongoing pandemic along with budget cuts, a shrinking workforce, and outdated technologies at the IRS.
- Delayed refund for returns claiming Additional Child Tax Credit (ACTC). The IRS cannot issue refunds before mid-February 2022 for returns that properly claim ACTC. This time frame applies to the entire refund, not just the portion associated with ACTC.
- The Child and Dependent Care Credit:
- Differences in credits for qualifying children and other dependents tax year 2021
- Enhanced child tax credit. For 2021, the child tax credit applies to qualifying children who have not attained age 18 by the end of 2021. Also, the initial amount of the child tax credit is increased to $3,600 for each qualifying child who has not attained age 6 by the end of 2021 and $3,000 for each other qualifying child who has not attained age 18 by the end of 2021. The credit for other dependents has not been enhanced.
- In the know. Important abbreviations: ACTC means additional child tax credit. ATIN means adoption taxpayer identification number. ITIN means individual taxpayer identification number. NCTC means nonrefundable child tax credit. ODC means credit for other dependents. RCTC means refundable child tax credit.
- Delayed refund for returns claiming ACTC. The IRS cannot issue refunds before mid-February 2022 for returns that properly claim ACTC. This time frame applies to the entire refund, not just the portion associated with ACTC.
- 2021 Child and dependent care credit information: The American Rescue Plan Act of 2021, was enacted on March 11, 2021, making the Child and Dependent Care credit substantially more generous and potentially refundable (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) only for the tax year 2021, This means an eligible taxpayer can receive this credit even if they owe no federal income tax. Your federal income tax may be reduced by claiming the Credit for Child and Dependent Care expenses on your tax return. ***
If you have been frustrated the past filing your individual and/or business in the past, this year will not be any different. We are constantly hearing from clients who are having difficulty contacting the IRS to get important information or a consultation on a previously filed tax return.
AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. Covid protocols if requested. We serve the Bethesda, Rockville, and Montgomery County, MD area.
*** For more information on Child and Dependent Care Tax Credit, visit the IRS website.