In light of the COVID-19 pandemic, there’s a good chance that you are working from home. For example, in May the Dallas Federal Reserve reported that approximately 35 percent of U.S. employees worked from home full-time, with almost 72 percent of those who were able to work from home choosing to do so. Working from home is likely the new normal for many people. This new normal brings with it a number of rules and practices of which taxpayers need to be aware.
The line between an employee versus an independent contractor continues to blur, especially with work from home increasing. Now, just because you are working from home does NOT mean that you can be considered self-employed, but it can make the case more likely if you were already on the line.
If there was a debate between being classified as an employee or an independent contractor when you began working for an organization, now may be the time to revisit your status – but only if you would rather be considered as an independent contractor. There are numerous pros and cons to each for the worker, but keep in mind that W-2 employees cannot take the home office deduction.
Maximize Your Employer Benefit
Check with your human resources department to see if your employer offers benefits such as cell phone reimbursements, a stipend for home office expenses, reimbursements for expenses, or other perks that you might not have needed or otherwise been entitled to before working from home.
Crossing State Lines
Perhaps the biggest confusion and potential change impacts employees who normally work in an office in one state, but live in, and are now working from, another state as a result of working from home. Working at home in one state when your company is in another state could mean that you’re now subject to taxation in both places, especially if either state has a physical presence rule.
The rules around this are numerous and complex and you can easily make mistakes if you don’t keep the right records. Given the complexity, the details are beyond the scope of this article; however, if you are now working in two states due to working from home part-time or from a different state as a result of working from home, it’s probably a good idea to consult your tax professional.
Working from home full-time or even semi-regularly might mean you need to upgrade your home office by purchasing equipment or making structural upgrades, such as soundproofing. These expenses can be deductible as long as they meet the home office deduction criteria.
Working from home could become the new normal for millions of people. If you play it smart, you can end up in both comfort and safety without any adverse financial consequences.