Work From Home— Wherever That Is
Kiplinger's Personal Finance|February 2021
The pandemic has made it easier to work from a distance, but some far-flung workers have to follow special rules for taxes, health care and insurance.
By Lisa Gerstner

Ellen Braaten, a child psychologist and associate professor at Harvard Medical School, fell in love with Prague when she spent seven months there on a sabbatical in 2018 and 2019. Following her sabbatical, she went back a few times to finish research she had done there, and she began thinking about how she might spend even more time in Prague while still keeping up with her Boston-based work responsibilities.

Then the coronavirus pandemic struck. Like many other professionals, Braaten found herself working from home—and that presented her with the perfect opportunity to try managing her job full-time from overseas. “There was no excuse for me not to go back to Prague and work there,” says Braaten. “I had a choice to be in a place that I love.” Last fall she spent more than two months in Prague, where she used videoconferencing to attend meetings with her colleagues, teach classes, meet with patients and speak at virtual conferences.

Although there are trade­offs—for one, teaching an evening class at Har­vard requires her to be on task from midnight to 3 a.m. in Prague’s time zone—Braaten has found that the situ­ation suits her, and she plans to spend the first few months of 2021 working from Prague. She’s hopeful that em­ployers will continue to accommodate remote work even after the pandemic has passed. “I have a feeling there might be more openness to it because it really works,” says Braaten.

A recent survey from the American Institute of CPAs found that 42% of employed Americans worked remotely at some point during the pandemic. If you’re among them, you may be taking advantage of the ability to work from somewhere that’s not your usual resi­dence—perhaps so that you can enjoy your vacation home for longer periods or spend time with family in another city. But depending on where you go and how long you stay there, you may run into complications when it comes to your taxes, health insurance and other aspects of your financial life— even if you stay within U.S. borders. (For more on how to manage your financial affairs from abroad, see the box at right.)

CHECK STATE TAX RULES

If you work remotely from a state where you don’t have your legal resi­dence, you may have to file an income tax return with that state and pay tax on money you earned from your job while working there. “Some states have a tax­filing obligation that begins the first day you do any work in the state,” says Jared Walczak, vice president of state projects for the Tax Foundation. “Anyone who spends a significant amount of time in a state other than their own likely has an income­tax obligation to that state,” he says.

The good news is that to avoid double taxation, you can usually claim a credit from your home state for any income tax you pay to another state. If you work for a while from a state with no income tax, you’ll pay income tax to your home state without a credit for the time you were away, says Walczak. Plus, more than a dozen states—in­cluding Georgia, Illinois, Maryland, New Jersey and Pennsylvania—are not imposing taxes on workers who relocate to those states temporarily because of the pandemic.

One potential stumbling block: the “convenience” rule. Six states (Arkan­sas, Connecticut, Delaware, Nebraska, New York and Pennsylvania) have rules under which employees may be taxed by the state where their office is located—even though the employees don’t live or work in that state—if they telework for their own convenience rather than because of employer re­quirements. In addition, Massachu­ setts is imposing similar rules during the pandemic on those who live and work outside the state if they’re em­ ployed by a Massachusetts employer.

Most states with convenience rules have not issued guidance as to whether they will apply the rules to those who are working remotely because of the pandemic, says Eileen Sherr, director for tax policy and ad­vocacy for the American Institute of CPAs. However, New York has said that nonresidents who telecommute during the pandemic for primary offices based in New York are considered working in the state unless the employer has established an office at the nonresident’s location, too.

If your employer’s office is in one of the states with a convenience rule, that could create a situation in which the state where you live and work remotely refuses to credit you for tax paid to your office’s state, says Walczak. Some states, however, are granting leniency to workers; for now, New Jersey, for example, is offering credits to workers who live and telework from New Jersey for offices located in New York, says Walczak.

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