When the COVID-19 pandemic shut down the economy last March, about half of U.S. workers suddenly shifted to remote work. Now that tax filing season is underway, some might ask whether they’ll get a tax break from working from home – or if they’ll see a bigger tax bill.
“It’s a common theme we’re seeing – there are so many people working from home,” says Lisa Greene-Lewis, an expert at TurboTax.
Unfortunately, the bottom line is many workers may not be able to take deductions for their home offices.
People who receive a W-2 tax form from their employers (such as full-time employees) aren’t eligible for a home-office deduction, nor can they write off expenses that weren’t covered by their employers, tax experts say. The limitations are due to changes in the tax code made in 2017’s Tax Cuts and Jobs Act.
Tax season prime:From coronavirus aid checks to unemployment benefits, here’s what you need to know.
Hate hedge funds? You’re not alone. GameStop frenzy showed a fresh contempt for the funds. Why the intense dislike?
The tax overhaul suspended the business use of home deduction through 2025 for employees. It got rid of the deduction for unreimbursed employee expenses, which allowed remote workers to write off unreimbursed work costs that exceeded 2% of their adjusted gross income.
Can you deduct that new desk?
That may disappoint many workers who paid up for new desks, chairs and other supplies to create a functional home office. In that case, you might want to ask your employer to reimburse you or to provide a stipend to pay for the office supplies you need to do your work, tax experts say.
Self-employed workers – freelancers, consultants, gig workers and the like – can claim the home office deduction, Greene-Lewis says. There are some limitations. First, the home office must be a dedicated space where you do your work and that isn’t used for another purpose. It must be your principal place of business.
Have a tax question? USA TODAY answers here.
“It can’t be your kitchen table where your kids do their homework,” Greene-Lewis says.
If you meet those guidelines, you’ll be able to deduct the expenses for your home office. If your office is 10% of your home’s total square footage, you can deduct 10% of indirect costs such as utilities, as well as direct costs such as repairs to your office.
State of confusion?
In some cases, employees’ homes are not in the states where their employer is based. That’s common in New York, Philadelphia and Boston, where workers often live in a neighboring state and commute to the city.
Some taxpayers may need to file income tax returns in two states, as in the case of people who moved out of cities during the pandemic – and worked part of the year in two states.
A few states have reciprocal agreements, often neighboring states such as New Jersey and Pennsylvania, that allow residents of one state to request exemption from withholding from the other state. The benefit of this is to avoid filing two state tax returns.
Child tax credit:Here’s how the Democrats’ $3,600-per-child plan would work
GameStop Winner? So you made a bundle on the ‘stonk’? Get ready to pay the taxes
In general, people who shifted to working from their homes in another state won’t be taxed twice, says Mark Jaeger, director of tax development at TaxAct. Taxpayers can claim credits for the taxes they paid to another state, such as a New Jersey resident who normally commutes to New York but worked at home last year.
“That way you can avoid double taxation,” he says.
A few states have “convenience” tax laws (which the Tax Foundation points out are “anything but convenient for taxpayers”), which means the state taxes workers based on the location of their employer. Some workers may face double taxation in states with these laws, which include Arkansas, Connecticut, Delaware, Nebraska, New York and Pennsylvania, the Tax Foundation says.
A brawl is brewing between New Hampshire and Massachusetts over remote workers. Massachusetts insisted that New Hampshire residents who normally commuted into the Bay State but work remotely during the pandemic must pay Massachusetts income taxes.
New Hampshire, which has no state income tax, sued Massachusetts last October in the Supreme Court, claiming the tax was unconstitutional.
“If you are not a resident of a state and not physically present in the state, it seems like a long arm for them to extend” Massachusetts taxation to those residents, says Eric Bronnenkant, head of tax for financial services company Betterment. “For people who live in New Hampshire, which doesn’t have a tax on wages, there is no offset in their home state. They are out everything that they pay to Massachusetts.”
Aimee Picchi is a business journalist whose work appears in publications including USA TODAY, CBS News and Consumer Reports. She spent almost a decade covering tech and media for Bloomberg News.