Many people transitioned to working from home during the pandemic. If you moved or worked remotely from a different state than you would've normally, you may need to file multiple state returns. Depending on which state you worked remotely in and for how long, you may need to pay income tax in more than one state. Each state has different guidelines on teleworking (and may have special rules related to the pandemic specifically), so it is important to look at individual state rules to determine if you need to file for that state this year.
Some states have a reciprocal tax agreement, also known as reciprocity, which is an agreement between two states that allows residents of one state to request an exemption from tax withholding in the other (reciprocal) state. This can save you the trouble of having to file multiple state returns. You can see which states have reciprocal agreements.
Fifteen states are providing some sort of temporary waiver for state withholdings and tax liability for remote work during the pandemic—Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Maine, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, South Carolina (through 2020), Wisconsin, and the City of St. Louis. This means that if you worked remotely in any of these states temporarily due to the pandemic, but don’t live there full-time, you may be exempt from having to file state taxes in that state. You’ll only need to file state taxes in the state where you’re a resident.
Seven states—Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania—follow an employer “convenience rule” which taxes you where your employer’s office is, even if that is not the state you are actually working in.
For example, in 2020, Arvin started working for a company based in Connecticut (CT). Due to the pandemic, Arvin worked remotely from his home in New Hampshire. Because Connecticut follows the “convenience rule” Arvin’s income may be subject to CT income tax on the income earned from the Connecticut-based company, even though he performed the majority of the work in New Hampshire.
With the odd matrix of state tax filing requirements and many people working from home or other temporary locations during the pandemic, filing state taxes may be more complicated this year. Keep track of the days you traveled, stayed, and worked in a different state from the one you reside in to determine your state income tax filing requirements and tax liability.
Guidelines around teleworking and COVID exceptions are still developing and this article will be updated as more information becomes available.