If You Work Remotely Where Do You Pay Taxes? RapidTax

Your employer should initiate a tax compliance review when it is made aware of a remote employee’s new location. In addition, I encourage you to follow up with a certified tax professional who is familiar with your new state and local taxation regulations. While taxes for remote workers are usually not more complicated than those for traditional office workers, most educational resources on taxation cater to people in traditional environments. People who work from home (or nomadically) don’t always have access to the information they need. If you work remotely or have employees who do, this guide can help you stay compliant no matter where you call HQ. In this case, you and your employee could be subject to tax liabilities in both states.

  • Another way of handling the disparity may be to create a proportional approach to income replacement.
  • Take Amnoni Myers, a child-welfare consultant and motivational speaker who left Sacramento for Oklahoma two years ago.
  • These jobs have dozens of active listings and offer remote, part-time opportunities.
  • However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states.
  • There’s also reimbursement for remote employees for their work-related expenses.
  • Regarding remote workers state income tax, working from home means paying state income tax to your home state.

TurboTax is also up to date with individual state laws, so you don’t need to know if your state allows unreimbursed employee deductions. 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. You can clear up a lot of the potential confusion by discussing things with your employer’s human resources department (or someone knowledgeable on tax laws). You don’t have to know everything about taxes; you only need to know your unique situation. Hybrid workers are also less likely to worry about taxes between states or regions.

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Reciprocal agreements—or a compromise between states that allows nonresident workers to request tax exemption from the other state—exist in some places to prevent double taxation, but only some states have one. In these situations, the employee’s resident state may issue a tax credit for any income paid to your organization’s state. So, if you work remotely from your home in Florida, you won’t need to file a resident tax return. In fact, you probably won’t need to file any state tax returns, unless your W-2 form indicates another state’s tax withholding. Typically, you’ll pay taxes in the state you live in (unless that state doesn’t have income taxes). But if you work in a different state, then you’ll usually need to file a nonresident tax form in the state where you worked, listing the income and taxes you paid and earned in that state.

remote work where do i pay taxes

If your job is in California but you’re living full-time and working remotely in Texas, for example, you wouldn’t have to pay taxes on your wages, since Texas doesn’t have income tax. If your job is in New York, a convenience rule state, but you lived and worked in Texas, you would have to pay New York income tax. If your job is in New York but you lived and worked in Virginia, it’s possible you’d have to pay income tax in both states. Even when states provide a credit, workers will have to shoulder that double tax burden until their tax returns come. The convenience rule can obligate employees to pay income tax to states they might now never step foot in, since it taxes income based on the location of the employer’s office.

What to do now to avoid a big tax bill

Yes, an accountable plan is a plan set up by employers to reimburse employees for business-related expenses. As long as the plan follows IRS regulations, employees can be reimbursed for necessary business expenses. Once you do, either your employer state will send you a refund for the taxes withheld, or the states will settle up with each other—in that case, your resident state will give you a tax credit for the withheld amount.

It’s also not clear how many people are moving to different states to work remotely, since there’s a lag in IRS data. But moving data from United Van Lines last year suggests people are increasingly moving from states with high taxes to states with lower or no income taxes. There are also state income taxes and state unemployment tax assessment (SUTA) taxes that can differ by location.

Where do remote employees pay taxes?

However, some states use “convenience of employer” rules that require you to pay taxes in your state, not the employee’s state. Additionally, double taxation risks, such as those for employees who commute across state lines, can still exist in some states. In other words, you’ll file two state tax returns; a resident return to the state you live in and a non-resident return to the state listed on your W-2 (the state your company is located in).

  • In plain English, both your resident and employer states will tax your income.
  • This test requires that you withhold and pay taxes to the state where your organization is located, even if your employees live out of state, if they do so out of convenience.
  • The 2017 Tax Cuts and Jobs Act suspended the home office deduction through 2025 for employees who “receive a paycheck or a W-2 exclusively from an employer,” according to the IRS.
  • A similar bill called the Mobile Workforce State Income Tax Simplification Act of 2021 is pending in the U.S.
  • As the name suggests, the simplified option makes calculating your deduction amount easy.

The 2017 Tax Cuts and Jobs Act suspended the home office deduction through 2025 for employees who “receive a paycheck or a W-2 exclusively from an employer,” according to the IRS. If you receive a Federal W-2 form from your employer then it doesn’t matter if you work from home 100% of the time, 50% of the time or not at all – you can’t deduct work expenses to reduce your taxable income. But according to Obih, you can ask your employer to reimburse you for office expenses, co-working space fee or whatever else you have to pay for out of pocket. 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. The vital thing to know is that remote workers can easily avoid double taxation if they live in one state and work in the other.

If I Work Remotely, Where Do I Pay Taxes?

During the pandemic, many Americans used the federal Family and Medical Leave Act, which gives employees up to 12 weeks of unpaid, job-protected leave to care for a sick family member. “Each state has its own rules,” said Eileen Sherr, director of tax policy and advocacy with the American Institute of Certified Public Accountants. And states may apply the rules differently, depending how do taxes work for remote jobs on what other state the worker was temporarily calling home during the pandemic. Workers may have to file more than one state tax return, and in certain situations they could end up owing taxes in both states. The details depend on your home state and what state you worked in during 2020. “He ended up going to Florida,” she said, since that state doesn’t have a state income tax.

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