2020 saw Americans changing where they live and work at a dizzying speed. More people are working remotely from different states and seeing income tax issues. Some sectors, such as the entertainment industry, are already dealing with income tax issues. How does having multiple sources of income create tax issues in Pittsburgh, Pennsylvania?
The US tax law has workers pay taxes in their home state. A home state is where a person spends most of their time each year and can own a home, vote or register a car. If they earn income in another state, some states have reciprocal agreements to stop double taxation. California has a 13.3% levy maximum. Some workers are moving to states, like Tennessee or Texas, which have income-tax-free tax laws.
State and local individual income tax
The tax law is different for every state and city, but seven states have no individual income tax. The highest individual income taxes are at least $2,200 and include California. The lowest individual income taxes are between $100 and $800 and include Pennsylvania. Tennessee only taxes interest, so their taxes are even lower.
State tax issues
Artists on tour with their work and athletes playing in multiple stadiums have complex tax issues. A state’s tax law can ask people to pay levies and file non-resident tax returns. If a California-based film crew works in Georgia, they would withhold the state levies and file a non-resident tax return. They will receive a credit for the taxes already paid to California. In a reversed situation, the Georgia crew would have trouble getting full credit for California’s high taxes.
City tax issues
There are almost 5,000 jurisdictions in the US. People can pay city levies on top of the state ones. Philadelphia has one of the highest wage taxes in the US, with 3.4481% for non-citizens. The write-off people use to avoid double taxing doesn’t apply to city taxes.
To avoid state income tax issues, a person needs to plan and work with other states. After 2020, more people have set up remote offices in different cities and states. The tax law has many variables, including federal tax law changes, state tax law changes and new city tax laws. 70% of the new remote workers didn’t know that working in a different state affects their taxes.