Federal lawmakers are also considering offering some relief from the practice, either permanently or as a pandemic-specific measure. States can tax your income where you live and where you work-but a growing number of states may also seek to tax your income even if you neither live nor work there, an aggressive posture that becomes increasingly consequential as more Americans work remotely both during and potentially after the COVID-19 pandemic. There is also renewed bipartisan interest in a federal remedy that would restrict states’ ability to impose income taxes on people not physically present in the state.In New Hampshire, which forgoes an income tax and is home to many residents who normally work out of offices in Massachusetts, the state Department of Justice is exploring Massachusetts’ new sourcing rule with an eye to possible litigation.Six states-Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania-had implemented so-called convenience rules prior to the COVID-19 pandemic, while Massachusetts adopted a temporary income sourcing rule with the same effect in response to pandemic-era telework.Seven states, however, tax people where their office is even if they do not actually work in the state, and these individuals may be denied their home state’s credit for taxes paid to another state, exposing them to double taxation.
When a person lives in one state but works in another, they may have tax liability in both states, but typically receive a tax credit to eliminate double taxation of that income.
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