Independent contractors that move from one state to another while working remotely from the same employer must establish a domicile or obtain a permanent residence to avoid double taxation. For instance, if you live in West Virginia, Pennsylvania, Washington DC, or Virginia and work in Maryland, you’ll only have to pay state taxes in your home state. You can file a nonresident state tax return to avoid being taxed on the same income twice.

Consulting a tax professional offers personalized guidance to help you navigate these rules, avoid common pitfalls, and maximize available exclusions and credits. A tax professional can also provide tailored advice based on your unique situation, helping you make informed decisions to minimize your U.S. tax liability. If you live and work in states with a reciprocal agreement, it’s essential to complete a non-residency certificate for your employer. This document notifies your employer of the arrangement, so they withhold state income taxes only for your home state. Without this form, your employer may withhold taxes for both states, which can lead to complications at tax time. When an employee or independent contractor, who is a US citizen, works remotely in another country, the tax issues become complex because each country has its own tax code.

An employee does not have to be in the country solely for business, but days for brief trips do not generally qualify. Unlike the bona fide residence test, an employee’s intention and purpose/nature of the trip are irrelevant—only full days of physical presence are necessary. However, if the employee was ever physically present and working in Louisiana, the portion of their income earned in Louisiana would be subject to Louisiana income tax. It is a key to establish a “tax home” to verify where to pay taxes and claim residence.

• In this article, we’ll explain how taxes work for different types of remote employees, which states have unique tax circumstances regarding remote work, and how remote work affects employee benefits.
• If your organization relies heavily on remote employees, allowing an EOR to handle complex international compliance issues can help reduce the stress on your HR professionals.
• In situations where there is no reciprocity, non-resident workers need to file an income tax return in both states.
• Some states have reciprocal agreements that enable remote workers to pay taxes in just one state and avoid double taxation.

Some states offer a credit that can help offset part or all the taxes you must pay to the state where your employer is. New Jersey, for example, offers a tax credit to offset state taxes its residents paid to New York because of the convenience rule while working from home. Unless you live and work in a state with no income tax, you may get taxed how does remote work get taxed twice on the same income. If you’re self-employed—which includes freelancing and some independent contracting—you may qualify for home office deductions that W-2 employees don’t.

Remote work taxes outside the United States ?

For example, suppose your organization is based in New York, but you have an employee working from home in Utah. « Food trucks, laundry services — there are a lot of businesses that depend on workers in the office, » Kantenga says. Office workers can also boost the local economy and support small businesses located near corporate buildings. There isn’t much firm research as to whether companies with a five-day in-office policy perform better as a business or on the stock market. « But we do find significant evidence that return-to-office mandates hurt employee job satisfaction, » Ma says. « We found return-to-office mandates are more likely in firms with male and powerful CEOs, » Ma says.

• Consequently, if taxes are higher in the employer’s state, the employee pays more taxes than if they had worked exclusively in their state of residence.
• Most payroll companies take care of all issues related to paying salaries and dealing with taxes.
• If you are considering a change in your professional career to work remotely, be self-employed, or become an independent contractor, you need to learn the tax laws.
• Navigating these complexities requires an understanding of factors such as tax domicile, state sourcing rules, and local tax liabilities, which determine tax responsibilities for remote workers.

But Washington has unique employment taxes and mandatory benefits such as paid family and medical leave, long-term care insurance, and paid sick leave. You should check with each state you have employees in to see what taxes you’re responsible for. If you have a telecommuting employee in a state different from your office location or have employees in multiple states, you must withhold income taxes for the state they live and work in. You’ll pay unemployment taxes and report their income to the states where they live, not your state. But when employees work remotely from another state, things can get complicated.

Depending on the state, you may be able to get a tax credit from the state where you are working but not living. You would file a resident state income tax form in your home state and a non-resident tax return in the state where you work. The first step in filing your income taxes is to determine your home and work states. States have laws about how long someone must be in the state for it to qualify as a residence or domicile. Generally, the rule is that you must spend more than half the year physically in the state. Your actions, such as where you have a driver’s license, receive mail, or vote, are also considered.

IRS Issues Guidance on Tax Issues for Remote Employees

Carefully track all income and business expenses to maximize deductions and ensure you pay what you owe. You can deduct expenses such as coworking space fees, travel to client meetings, and electronics. In most cases, you’ll only have to report taxes to the state you’re currently living in and not the state where the company you’re working for is based. Yes, you can write off your internet bill if you work from home if you’re a self-employed small business owner or contractor.

Remote work taxes: How income tax relates to where you live and work

With CPE courses for CPAs and IRS-approved CE for Enrolled Agents, you can feel confident that you’re meeting your requirements while gaining new skills and information to better serve your clients. The situation is even more complicated when the worker is located in a different country. This section of the article is focused on taxation based on the worker’s location. Remote workers must pay local and state taxes even if their employer is in a different state. However, you may owe taxes in the US if you earn more than $100,000 per year, so you must check your tax responsibilities before you file a tax return to avoid generating tax debt. Remote workers who don’t live in the state where they work don’t have to file taxes in both states if they work from home.

Interstate Agreements on Double Taxation

Navigating these complexities requires an understanding of factors such as tax domicile, state sourcing rules, and local tax liabilities, which determine tax responsibilities for remote workers. If there isn’t reciprocity between the two states, some states allow you to get a credit for taxes paid in the state where you’re not living and working. To get the credit, you’d have to file an income tax return in both states. That means filing a resident state income tax form for your home state with all your income sources and a nonresident tax return with only your employment income.

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« As that shrinks, employers are going to have to do more to attract employees, and offering flexible work might be the thing that they have to do. » Most companies with remote and hybrid policies don’t intend to change them in the next 12 months, according to new survey findings from Stanford and the Federal Reserve Bank of Atlanta. It’s not surprising to see more RTO mandates take shape as power has shifted in the labor market, from employees during the Great Resignation back to employers in a new layoff environment. If employees do choose to stay, some rebel against the mandates by only making brief appearances in the office, also known as coffee badging. Or they may stay but be less engaged in their work, which translates to lower productivity and performance.

Whether or not working remotely impacts your taxes will depend on several factors. States with income taxes want to ensure those profiting in their state pay the imposed tax. To prevent employers from avoiding the tax, states look to charge non-resident income tax. How and when you must pay taxes will depend on where you live, where the company that you are employed with is located, your worker classification, and the income tax laws in both states. Filing nonresident returns is often required when individuals earn income in a state or locality where they do not reside. For remote workers, this typically involves filing returns in the state where the employer is based, in addition to their home state.

You’ll have to rent or buy a property, update your mailing address or obtain a new driving license to prove you’re no longer eligible to pay income taxes in another state. If you offer taxable employee benefits such as employee stipends, you’ll also need to report the additional taxable income to the states that require it. This is because taxable benefits are additional income and must appear on an employee’s Form W-2. This affects the total amount of taxable wages and withholdings for your employees’ individual income tax.

Otherwise, state governments consider them permanent residents of the other state. (Technically, Washington, DC, has the highest basic minimum rate, but it’s not a state.) The same logic applies to possible reimbursement for home internet. For remote employees, home internet costs could certainly be considered a « necessary expenditure. » It may only be « necessary » when the employee has no choice but to work from home. If going into the office is an option, but the employee chooses to work remotely, compensation for home office expenses, including internet, isn’t guaranteed.