Out-of-State Remote Work Creates Tax Headaches for Employers

The ongoing shift to remote work calls into question the satisfaction of these existing jobs requirements, the ability to renegotiate these benefits, as well as the approach to pursuing similar credits and incentives in the future. To avoid paying taxes on the same income twice, the taxpayer can credit the taxes paid in their non-resident state against their home state’s tax liability (or vice versa depending on which state has higher taxes). CNBC Select spoke with two CPAs to get their advice on what remote workers should pay attention to this tax season and how to go about preparing their taxes. Catherine Stanton, past chair of the AICPA’s state and local tax committee, says she’s fielded an increasing number of questions about out-of-state remote situations from clients, both employees and employers.

There isn’t a hard limit on how much you can deduct for home office expenses. However, your home office deductions cannot exceed your business’ net income (the gross income it earns minus regular expenses). If you work at a larger company, for example, they can assign you to an office outside of convenience rule states so you can avoid being how do taxes work for remote jobs taxed by a state you aren’t in, Stanton said. 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. There are many different types of remote employees, and they each have different circumstances that can affect taxation.

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Food assistance through the Supplemental Nutrition Assistance, or SNAP, program is “on better footing” than WICs, which would likely be affected within days of a shutdown, Sprick said. But SNAP benefits would also be at risk if a shutdown persists for a couple weeks, he said. “Losing out on income for one, two or three pay periods can be the difference between paying rent or a mortgage,” Sprick said. Every year Congress must pass legislation to fund the federal government for the coming fiscal year.

Because the federal government levies these taxes, where you live doesn’t matter. Because of this, both you and your employees should be on the lookout for changes in tax law. The Senate’s Remote and Mobile Worker Relief Act of 2021 would stop states from withholding taxes for nonresident employees who are only in the state for 30 days or less. The House has introduced a similar bill, the Remote Worker Relief Act of 2020, that would limit the use of the “convenience of the employer” rule for nonresident workers. A permanent remote worker will file their personal income taxes in their state of residence, whether they are a W-2 employee or a 1099-NEC independent contractor. And filing taxes in multiple states is just one of many complications that make figuring out your state and local tax obligations so difficult.

State tax withholding for remote employees Q&A

Therefore, in these situations, a shift in employee work locations can directly affect receipts factor sourcing for apportionment. Once again, this highlights the practical need to accurately capture the location from which compensation is earned. 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. Each state has its own rules regarding how long an employee can work in that state as a nonresident or part-year resident without owing income tax.

Ensuring compliance is critical to avoid penalties and legal hassles and to foster trust within the workforce. In simpler terms, if your decision to work remotely is for your own convenience as opposed to your employer’s requirement, you may still need to pay New York state taxes. 1  North Dakota and Utah technically have a 21-day filing threshold, but it only applies to states with no income tax or that have the same threshold. Additionally, several subsets of employees are exempted from this threshold. For instance, knowing your employee classification often significantly impacts what taxes you pay at the end of the year. W-2 employees have to pay different taxes than 1099 freelancers or temporary independent contractors; exempt and non-exempt employees have differing tax burdens.

Commonly Overlooked Tax Deductions and Credits

Typically, when this happens, the state where the person lives would award a tax credit to offset taxes in the state where that person works. A person who lives and works remotely in Washington, for example, can perform work for a company that is based in California without having to pay California state taxes. However, remote workers who travel to other states and work from there may have to file a nonresident state tax return. Remote workers do not have to file nonresident state tax returns unless they physically travel to another state and perform work while they are there.

• If you have employees who recently moved to a new state and worked remotely, they’ll need to establish a new domicile, or permanent residence, to avoid being taxed in both their current and former states.
• US businesses that hire international remote workers who don’t meet these criteria can potentially face penalties at home and abroad.
• Engoron declined to answer whether the assets would be sold or simply managed by an independent receiver when asked by one of Trump’s lawyers during a hearing on Wednesday, saying he would rule on that question later.
• In this case, you usually pay unemployment tax to the employee’s state of residence.
• There are many different types of remote employees, and they each have different circumstances that can affect taxation.

Whether remote workers pay income tax to the state where they work temporarily depends on the duration of their stay. Different states have different guidelines on the length of time that warrants an employee to file a non-resident tax return. Remote workers in these scenarios often look up their local state laws to determine the time required to file in their temporary state. Otherwise, the only state income tax these remote workers need to pay is their state of residence. Nonresident workers in the Pine Tree State must only file an individual income tax return after they have worked 12 days in-state and earned $3,000 in wages.