07 May I worked from home since COVID. What happens to my taxes?

Q. In preparation for my tax return, can I apportion my income differently this year. And should I? My business is in New York City but I live in New Jersey. I’ve been working from home since March 2020. I’ve previously paid taxes to New York State and received a credit towards my New Jersey taxes, but because New Jersey’s rate is more than 2% higher than New York, I would still owe money to New Jersey and there could be an underpayment penalty. How should I file?
— Unsure

A. You are not alone in your question as COVID has so many people working from home.

The two-state question is a common one.

But New York State law is very clear on this matter, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

“New York State has what is referred to as the `convenience law,’ which states that an employee whose company is based in New York but works in a different state because it is convenient to do so is deemed to have earned his income in the state of New York and is taxed accordingly,” Gallo said.

So even though you have worked from home in New Jersey for most of 2020, New York is going to tax you on that income as a non-resident just as it has in the past, he said. You will receive a credit for those taxes paid against your New Jersey resident income taxes.

In your case, working from home because of COVID won’t change how either state handles your tax filing requirements and you should file in the way you always have, he said.

“As for your concern regarding owing New Jersey taxes and being penalized, you should have your tax preparer review your situation and see if you should be making New Jersey estimated payments going forward,” he said.

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This story was originally published May 7, 2021.

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