How Does Working Remotely Affect My Taxes?

Remote workers in these areas how does remote work get taxed must file and pay city taxes in addition to state obligations. When managing payroll for remote or hybrid workers, state income taxes can become tricky. Typically, employees pay income tax in the state where they live and work, but for remote and hybrid work schedules, these locations may differ. Both remote workers and employers can take proactive steps to ensure compliance with tax laws and simplify the tax filing process. The following best practices provide guidance on managing tax obligations effectively. Not all states enforce the “Convenience of the Employer” rule, but those that do can significantly affect tax liabilities for remote workers.

If you’re a 1099 contractor, you’ll be responsible for your FICA contributions and insurance, so it’s important to know how much you should expect to pay and plan accordingly. In some states, you may also have to reimburse your employees for their remote work costs, such as the necessary tools to do their jobs. Organizations near state borders often hire employees from other states who commute to work across state lines.

• Companies and employees have been enjoying remote work policy for a while.
• 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.
• The “Convenience of the Employer” rule is a significant factor for remote workers to consider, especially for those employed by companies in states that enforce it.
• Unlike other remote workers, these hybrid workers or in-office workers live in another state but work in the same state as your organization.
• In this case, you and your cross-border worker could be subject to tax liabilities in both states.

Company

Employers are required to withhold state income taxes based on the location of their employees. If remote workers live in a state different from the employer’s primary location, the employer may need to register with the employee’s state to fulfill state tax withholding obligations. The specific requirements vary by state, so it’s essential to stay informed about each state’s tax rules to ensure compliance. The test, which varies among states, is whether the employee is working remotely for the employee’s convenience, not because the employer requires it.

How are remote workers taxed?

Some employers may simplify things by offering remote employees a monthly stipend. The set amount can go toward internet bills, home office equipment or other expenses incurred as a result of working from home. If you work for a company based in New York but reside in Pennsylvania, you may be required to pay non-resident taxes to New York while also paying resident state taxes to Pennsylvania.

The IRS requires detailed records of these expenses, so track receipts, bills, and calculations to stay compliant and maximize your deduction. If your employer doesn’t offer an accountable plan, you are responsible for covering remote work expenses without any tax relief. We are committed to providing you with reliable legal information in a way that is easy to understand. Our legal resources pages are created by experienced attorney writers and writers that specialize in legal content in consultation with the top attorneys that make our Super Lawyers lists.

Working With Remote Workers Outside of the United States

Rippling’s global payroll software integrates with your existing HR tools and systems to streamline and automate payroll management across multiple countries. Whether you qualify as a W-2 employee or a 1099 contractor has big implications, and it’s important to understand your tax classification correctly. According to the Bureau of Labor Statistics, one in five employees in America works remotely. For some, that means a home office halfway around the world from company headquarters. For others, it means telecommuting for half the week across multiple states. Chase Charaba is the Content Marketing Manager at PeopleKeep, where he brings three years of expertise in HRAs and health benefits.

Remote work taxes: American demographic 👷‍♀️🧑‍🏭

That is unless the state has a reciprocity agreement with your home state or doesn’t levy an income tax. Knowing what qualifies for deductions and how to claim eligible expenses can help you avoid common pitfalls and make the most of your tax situation. We’ll break down what home office expenses remote workers can deduct, how to track and document your expenses, and what remote workers need to know before filing tax returns. For employers, the rise of remote work brings unique responsibilities in managing remote worker tax compliance.

Full-time remote workers can only make standard or itemized tax deductions available to all other taxpayers. Independent contractors can claim business expense deductions on tax returns. However, some states don’t require organizations to report taxable employee benefits they offer to their remote workers, which is why you must check state tax laws for each remote worker you hire. Some states have reciprocal agreements that enable remote workers to pay taxes in just one state and avoid double taxation. A growing number of independent contractors and full-time remote workers try to keep up with how taxes work if you work remotely, as tax laws vary by state.

W-2 employees

• In this article, we’ll explore some of the nuances of taxation for remote employees and offer suggestions for best practices to simplify national and international payroll.
• In such states, a generous company may help cover internet costs or other work-from-home expenses voluntarily or by request, but I wouldn’t count on it.
• Independent contractors can claim business expense deductions on tax returns.
• Here are a few things you can do to keep your tax obligations at a minimum while working remotely.
• It’s critical to comply with state or foreign country laws to ensure you’re not breaking any rules.

This can increase administrative tasks, as individuals must allocate income and expenses between jurisdictions and apply appropriate credits to avoid double taxation. Employees working remotely from another state temporarily, such as for business trips or short-term projects, may face tax requirements in both their home and host states. Many states mandate non-resident tax filings for those who earn income in their jurisdiction. The rules vary significantly by state, often depending on the duration of the stay and the amount earned.

In this case, you either work with an already existing company or enable employees to create another business in a foreign country. It’s a straightforward way to hire a remote employee (or a team) from another country. For example, if the state where you received the credit could have a lower tax rate than your home state, you may still owe residual tax. For states with a “convenience of the employer rule,” you may be at risk of paying double taxes. Whether or not you need to file a state income tax return will depend on which state you live and work in.

The U.S. Supreme Court case, Comptroller of the Treasury of Maryland v. Wynne, also made strides. In that case, Maryland gave a credit for state income taxes but not the county tax. The Supreme Court ruled that not providing a refund for double taxation is unconstitutional.

This can result in situations where someone is a resident for tax purposes in one country but domiciled in another, affecting global tax liabilities. Remote workers with ties to multiple countries must consider these distinctions when assessing tax obligations on worldwide income. Even in states where laws require it, calculating how much your employer owes you can be a bit complicated and, for some, more trouble than it might be worth.

In this article, we’ll explore some of the nuances of taxation for remote employees and offer suggestions for best practices to simplify national and international payroll. In this case, you and your cross-border worker could be subject to tax liabilities in both states. In these situations, the employee’s resident state may issue a tax credit for any income paid to your organization’s state. Tracking the days worked in each state and maintaining detailed income records ensures proper apportionment and compliance. Taxpayers should also understand the credits available for taxes paid to other jurisdictions to minimize their overall burden. Using tax software or consulting professionals specializing in multistate compliance can aid in accurately preparing nonresident returns and adhering to state-specific requirements.

“They are used to working in the office for five days a week. And they feel that they are losing control over their employees who are working from home.” For more ways to save around your home, check out CNET’s Home Tips section. For more information about possible tax deductions and taxes in general, be sure to visit CNET’s Taxes hub page.

Stay on top of your obligations and you will be free to continue your nomadic lifestyle with peace of mind. Checking with the tax authorities in the country where you spend most of your time working is the best way. See whether they use a day count test or consider other factors like where to maintain a home or have close personal connections. Some countries have tax treaties with each other that can impact residency status.