Editor’s Note: This is the final installment of a 3-part series by Wilmington College Assistant Professor Allen Beatty.
State and Local Tax Issues and having a Home Office
The pandemic and subsequent lockdowns with state-of-the-art technology allowed us to find ways to work at home on a scale that has never been done. It is anticipated that many people will continue to work at home for an indefinite period at least part of the time.
While the focus of this article and most tax reports are federal taxes, state and local income taxes should be addressed.
If a worker reports and has an office in Massachusetts, but lives in New Hampshire and works from home, should he or she still have Massachusetts withholding? This is something currently being played out in the courts.
The same goes for us here in Ohio, be it working and living in one state or even city to city. Currently, the state of Ohio allows your employer to withhold local city taxes for your office even if you live in another city. What happens, though, if you start working from home for months on end such as 2020, 2021, and the foreseeable future?
In the past, if you could receive a written letter from your employer, you could either have those withholdings stopped or at least receive a refund from the city. For several years I worked at a financial institution in Columbus, but I worked remotely from my home in Jackson, Ohio, four out of five days a week. Each year I filed the paperwork to receive a refund. It took some time.
I am sure the city of Columbus wasn’t too thrilled. At that time the city of Jackson didn’t have an income tax. In March, Ohio House Bill 197 was signed that allowed the employer to still withhold for the municipality of where “the job was located.” In other words, if your office is in Columbus, Dayton, or Cincinnati, the income will still be withheld even if you are not actually going to that office. This is in effect “during the emergency period” as worded in the law.
Nobody knows when that emergency period will end. It is anticipated that many people will file tax returns for those cities with letters from employers.
However, it is also anticipated that these large cities will lose millions of dollars will not be issuing refunds anytime soon. The thought among accountants is that lawsuits like those in the northeast will be filed later this year by individuals.
Keep in mind that even if a taxpayer is successful in receiving a refund from the city of employment, he/she may end up turning around and paying most of that back to his/her city of residence. I would anticipate this would only help those who live outside a municipality.
This brings up another issue about your “home office.”
Up until 2018 a taxpayer could claim and deduct a home office on his/her return as an employee while itemizing. However, the Tax Cut and Jobs Act eliminated that provision through 2025.
Thus, keeping track of all of those “home office expenses” aren’t necessarily unless you are self-employed, or a contractor deemed as being self-employed.
Keep in mind that even when “employee business deductions” were allowed the amount to deduct was often minimal once the formula was applied unless a worker was driving their personal automobile extensively for work.
Of course, as I write this article, it remains to be seen if there will be a “Stimulus 3.0”. It seems there is some support for that, but it is open to see if that will happen anytime soon.
As many provisions with individuals there were many more with businesses. Specially, the “PPP” or Paycheck Protection Program that allowed businesses to obtain very low interest rate loans to stay afloat.
If certain requirements were met these loans were forgiven thereby basically making them a grant. I will not address those items here since these are not areas that I deal with extensively.
I think you will agree just these few key items for individuals are enough to digest.
You should consult your tax professional for how these provisions apply directly to your situation.
If you are a taxpayer in the community with an AGI of $57,000 or below our students at Wilmington College through the VITA program are here to assist you this coming tax year!
Feel free to contact our current VITA site coordinator, Nate Johnson, at 937-546-3628 or at email@example.com for an appointment.
For general tax questions you can contact me at the college at firstname.lastname@example.org or 937-481-2390.
Allen “Al” Beatty, EA, CPA, MT is an Assistant Professor of Accounting at Wilmington College.