Pandemic-boosted remote workforce may be in for a shock at tax time

Enlarge / Depending where you live and work, you may need at least this many devices to sort your tax situation out this spring. (credit: Boonchai Wedmakawand | Getty Images)

The COVID-19 pandemic accelerated a trend that was already well underway: employers letting their workers perform their jobs remotely, from home, most or all of the time. But even if you and your employer both know exactly where you live and work, you may be surprised to learn that state departments of taxation can have some very different ideas about where "here" is. As a result, Texans, Utahns, and Arkansawyers who work for New York- or Massachusetts-based companies will have income taxes withheld from their paychecks, even if they've never set foot in the home office.

In the wake of the pandemic, dozens of major companies are embracing employees' desire to stay remote, increasing their support for working from home permanently. Some businesses have even closed offices or let leases lapse, counting on a physically distant, flexible workforce to reduce their real estate needs.

In many ways this can be a win/win: employers can save overhead costs on expensive square footage in high-demand cities, and employees can save time and money by skipping the commute and dialing in from, basically, anywhere they want. New York, San Francisco, and Los Angeles are expensive; maybe you want to move to Montana and dial in from the woods, or get a nice little ocean-view place in Florida. Unfortunately, as far as the state is concerned, your beachside cabana may as well be squarely in the middle of Manhattan, and you will be taxed as such.

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