Typically, people file a return in the state where he or she is a resident and the nonresident state where he or she works. The worker gets a credit in the resident state for income taxes paid elsewhere and is required to file two returns.
However, there are a complex patchwork of laws governing how different states treat nonresident income taxes, including when taxes take effect.
Six states also have so-called convenience of employer rules, which mean that all of an employee’s income is sourced to the employer’s state regardless of where the employee is physically working.
A handful of states have come out with new, temporary coronavirus-specific regulations, too.
Lawmakers, however, are trying to help diffuse some of the confusion at the federal level.
The GOP-sponsored HEALS Act contains a bipartisan measure sponsored by South Dakota Republican Sen. John Thune and Ohio Democrat Sen. Sherrod Brown to simplify cross-border income taxation.
The updated version of the Mobile Workforce State Income Tax Simplification Act contains provisions that are specifically tailored to the situation many remote workers are facing during the pandemic.
The first thing the bill does is maintains the tax “status-quo” for workers who live in a different state than their place of work. That means workers would continue to pay taxes as if they were traveling to their offices every day – preempting potentially higher tax bills for some, Thune said.
“Under my bill, if you planned to work in North Carolina but had to work from home in South Carolina during the pandemic, your income would still be taxed as if you were going in to the office in North Carolina every day, just as it would have been if the pandemic had never happened,” Thune said on the Senate floor.
For mobile workers, people who spent thirty days or fewer working in a different state would be taxed as normal in their home state – overriding any conflicting statewide rules. After 30 days, you would be subject to income taxes in the state that you had traveled to.
For frontline workers who crossed state borders in order to help patients in hard-hit states, like New York, the moratorium on income taxes in the new state would be extended to 90 days. That is intended to prevent these people from facing surprise tax bills for their essential work.
Negotiations on a broader stimulus package have broken down, so it is unclear at this time whether Democrats, Republicans and the Trump administration will strike a deal.