The concept of a Tax Home is one as old as the IRS Code. It comes down to where your income must be reported and which state gets your tax dollars.
This problem is further complicated by states that have passed laws contrary to Federal Tax Law in an effort to increase their revenues. The continuing fact that most states are almost bankrupt simply means that all of them want your money whether they’re actually entitled to it or not.
And the not so subtle shift to remote work has further exacerbated all of these difficulties.
The Federal Law of what constitutes a tax home used to be limited to where you spent the most time. The old Six Months and A Day Rule meant that wherever you lived more than half of the year constituted your tax home. This worked in simpler times when taxpayers didn’t move around much, but things have changed.
Commuters
What happens if we have a person who lives in Wisconsin but works in Illinois? This is an easier problem because these two states have Reciprocity.
If the Illinois Employer withheld and remitted Illinois Withholding taxes on this worker, and the taxpayer files a Wisconsin return, Wisconsin will give the taxpayer a credit for the Illinois Withholding.
This is what’s known as Reciprocity.
But what happens if this happens between two states without a reciprocity agreement, like Illinois and Indiana? In this instance, we’d have to file an Illinois return in order to get the withholding refunded and file a separate Indiana return to pay the appropriate tax.
Remote Workers
What happens if you have an Illinois Entity that is employing a remote worker in New Jersey? Since there’s no reciprocity between Illinois and New Jersey, two returns would again need to be filed as in the prior instance.
Workers Living In Several States
We now have yet another nightmare, when we have someone who can’t sit still and work in one place. Some workers seem to be on a permanent vacation, moving from this place to several others throughout a given tax year.
The continuing problem that the Federal laws are different then the States, and that all of the State Laws are different from each other makes this seemingly impossible.
There are no easy answers. These situations come down to the Facts and Circumstances. Each case is different. Studying the individual tax laws of the individual states in question will be the only way to resolve this issue properly.
And when an inexperienced taxpayer files their own return not actually knowing any tax law, you have a situation where an audit is probable.
Let me leave you with this.
Various Congressional Committees have put their approval on a bi-partisan tax package that they’re hoping to pass prior to the beginning of tax filing season. In case you don’t know, the IRS will begin accepting returns three days from now on Monday the 29th.
Why is this important? Because the tax changes they propose are retroactive to 2023. If signed into law, this package will change the way we’re supposed to file the 2023 returns.
That’s right. You heard it here first. A full month into 2024, they’re still trying to pass 2023 tax laws.
What does this mean? Even though I’ve completed several returns, this will push everything back even further because our tax software will need to be updated.
We were supposed to get the final versions of our software next week. If this law passes, then we probably won’t get the updates for another two weeks.
And we’ll still only have until March 15th to file the S Corp and Partnership Returns.
How is any of this going to be possible if I can’t actually file a return until somewhere near the 20th of February? Welcome to my world.
Be patient. We’ll get them done and we’ll get them done correctly. We just need to wait for our esteemed legislators to figure out what they’re actually going to do
We’re all going to get through this. Let’s get through it together.
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