Despite our strained relationship with the tax man, most Americans don’t balk at paying their fair share. But there are limits. How would you like to be taxed on 200% of your income, for example? As a telecommuter, you could easily end up in that nasty position simply by choosing the wrong employer.
Live in California and work for a New York company by internet connection, for example, and you could be in a world of hurt. California will properly consider you a resident and want state taxes on your full income. But then New York will apply a charming thing called the “convenience of the employer” rule and demand resident income taxes on 100% of your income too, on the grounds that you were a New York resident in disguise for all those long telecommuting hours.
Even if your home state gives you a tax credit for the New York taxes, this is not a great situation: New York’s tax rates are generally pretty high, and you’ll be supporting public services in a state where you don’t live instead of the one where you use roads, libraries, and public schools.
Putting an end to this situation is the reason why Representative Christopher Shays (R-CT) and Senator Chris Dodd (D-CT) have introduced the Telecommuter Tax Fairness Act of 2007 (H.R.1360/S.785). Unlike some pieces of legislation, this one is clear enough for the average web worker to understand: it says you’re not a state resident if you’re not physically present in that state.
Of course, like most legislation, this particular bill is currently sitting in committee in both the House and the Senate. So once again it’s time to take electronic quill in hand and write to your representatives in congress. You might also want to drop by the Web site of TelCoa, the Telework Coalition, who have a packed page of background and links on this particular issue. The paycheck you save may be your own.