State personal income tax exposure when working in non-domicile state

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September 2020

Overview

In response to the COVID-19 pandemic, many states have declared states of emergency and imposed temporary social-distancing measures and other restrictions.  Many businesses, in turn, have implemented work-from-home requirements for their employees. In some cases, individuals have opted to work from home in a location other than their primary state of residence, choosing instead to work from a second home or other location in another state. This action could have state tax implications. 

At the beginning of the pandemic, the focus was on whether these employees would be required to report wages and other income as nonresidents while temporary telecommuting from these other states. However, as employees continue to remain at these locations, the discussion has started to shift as to whether they could be considered residents in these secondary states — even if they continue to be a resident in their state of domicile — and whether potential dual-residency status could result in double taxation.

The takeaway

Individuals working from a second home or vacation home in a state other than their state of domicile could be exposed to double taxation on their income if the criteria for statutory residency are met. It is recommended that individuals that have been working from a state other than their state of domicile consult their tax advisor to determine the statutory residency rules in these jurisdictions (and whether double taxation could be avoided), as well as how the credit provisions work in both their state of domicile and state of statutory residence, to determine any adverse state tax implications.

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Frank Graziano

Personal Financial Services Leader, PwC US

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