Tax Law Issues Related to Working Remotely in a Different State COVID-19 Legal Center

However, if the remote employee works in a different state, they likely pay state income tax to their home state rather than their employer’s state. If they live in a convenience rule state, they often need to pay taxes to their employer’s state or file for exemption via a reciprocal agreement. Remote workers who work from home earn an income in their state of residence and therefore pay state income tax to their home state. In most cases, the remote employee would not have to pay taxes to their employer’s state. The acceleration of remote work has also changed tax withholding for employees and employers. Generally, taxes should be withheld for the state where services are performed, but this becomes more complicated when an employee works in multiple states or telecommutes.

You should speak with the labor and unemployment agencies of each state your employees live and work in to ensure you follow all the proper tax procedures and withholdings. According to WFH Research1, in August 2023, 13% of full-time employees were fully remote, and 30% worked a hybrid schedule. With so many people working from home, employers and state governments face new challenges regarding taxation, nexus, and employee benefits. Each state has its own approach to taxation, and depending on where you live and work, this tax obligation varies.

Expert Q&A: Resolving Tax-Filing Issues for Remote Workers

You are still responsible for filing correctly, though, so you should check the residency rules for your employer’s state to make sure you aren’t required to file a tax return there. If employees work remotely in your same state, these rules also apply, usually with only a few changes to local tax withholding. That means, if you’re working remotely you’ll only have to file a how do taxes work for remote jobs resident tax return to the state you live in. Assuming the taxpayer spent 184 days or more in New York, the taxpayer is now required to file a part-year resident return for both New York and California. New York requires taxpayers who spend 184 or more days in the state during the year to file in New York, whether or not the taxpayer maintained a permanent residence there.

Even better, we autofill as much info as we can pull from your federal tax return, so you won’t get stuck plugging in the same information over and over for each state. Once you do, either your employer state will send you a refund for the taxes withheld, or the states will https://remotemode.net/ settle up with each other—in that case, your resident state will give you a tax credit for the withheld amount. The Convenience of Employer rule essentially says that any income you earn for a company will be taxed in the employer state, regardless of your residency status.

How can we ensure that remote workers do not get reimbursed more than teleworking employees who live the same distance away?

If you worked remotely in a different state, you may need to file and pay state income taxes in that location. Employers don’t have to make any state withholdings for Alaskan remote workers. There can be significant penalties for not filing and paying taxes in a state where there is an obligation.

• While many individuals might work in a nearby city, they might live in another town.
• Employers are responsible for withholding federal income taxes, FICA taxes (Social Security and Medicare), and federal unemployment taxes (FUTA) for remote employees.
• And what a lot of remote workers might not know is that they might be responsible for state income taxes in the state where they live and work, regardless of where their company is located.
• The Tax Foundation’s Walczak said that by looking for short-term tax windfalls, convenience rule states might lose long-term tax gains by driving businesses elsewhere.
• Because New Hampshire doesn’t have an income tax, these employees didn’t pay one in Massachusetts.
• This enables you to give your employees a taxable allowance for their remote work expenses, such as internet service, cell phone bills, and home office setup costs.
• As the name suggests, the simplified option makes calculating your deduction amount easy.

Agreements are more common between commuter states, such as Illinois and Indiana or Virginia and Washington, D.C. Reciprocity agreements may include tax credits or even exempt a worker from having to file a non-resident tax return at all. If your home state does not require income taxes, you will only need to file a tax return to the state listed on your W-2. If the state listed on your W-2 is the same as your home state or is one of the other states with no income tax, you will not have to file a personal income tax return for any state. Most states require a personal income tax return after a worker spends a certain amount of time working in the state, regardless of where the worker is permanently domiciled. For example, Arizona requires a tax return after 60 days of working in the state.

What Taxes for Remote Workers are Employers Responsible for?

So, if your job’s office is in state A, but because of the pandemic you’re living and working full time in state B, you’d pay income and all other taxes to state B. If state B has lower income taxes than state A, that would be a boon for remote workers who moved. It could also be a reason for more people to pull up stakes now that they’re less tethered to the office. While businesses are responsible for withholding taxes for remote employees, there isn’t a simple fix-all solution.

• Even if you usually prepare them yourself, you might find it helpful to enlist the services of a certified public accountant (CPA) or another credentialed tax preparer.
• The acceleration of remote work has also changed tax withholding for employees and employers.

To avoid double taxation, most states allow their residents to claim a credit for taxes paid to nonresident states on the same income. While remote work may require these owners to file additional state returns based on an expanded nexus footprint, they may also see an increase in their resident state credit for taxes paid to additional states. However, no good deed goes unpunished; such changes require a reevaluation of tax obligations.

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We also update our blogs and Help Center and continuously train our customer support teams. This process ensures our clients receive remote workforce information across our entire platform.To learn more about what APS can do to help you handle payroll taxes for remote employees and teams, contact us today. The United States uses a progressive, seven-tier tax bracket system for personal income taxes.