How Out-Of-State Remote Work Affects Your Taxes

If you plan to work in a different state than where you reside, check into that state’s income tax law to see if you will need to file personal income taxes with them. You should also check the tax laws for the state in which you are planning to work in order to determine whether or not they will require you to pay non-resident taxes for working in their state. Generally, these tax laws are based upon income thresholds and time spent working in that state.

Your remote work taxes will need to register with the tax agencies in each state it has remote employees. You may also need to register with the labor/unemployment agencies in each locale too. This means when you pay independent contractors or freelancers, you don’t have to withhold payroll taxes from their pay. In addition, businesses protected by Public Law , which excludes them from income tax liability, could lose their protection if someone working remotely in another state were to trigger nexus. Unlike remote employees, remote contractors aren’t often entitled to benefits (e.g., paid leave) and are hired on a project basis .

S.H. Block Tax Services

Employers with international employees and contractors usually need third-party assistance from a PEO or an EOR to stay compliant. In general, if you’re working remotely you’ll only have to file and pay income taxes in the state where you live. However, in some cases, you may be required to file tax returns in two different states.

This is another form of double taxation, and it’s happening more and more, especially in states where legislators have caught on to the fact that people tend to leave seasonally and work portions of the year elsewhere. You can try services like Remote, which help you hire internationally and manage payroll, benefits, taxes, and compliance. And since each employee and remote work situation is different, their experience with labor/tax laws may be a massive advantage for your team. The same options may be available for paying remote employees abroad too.

How to Set Up Taxes for Remote Workers

While remote work has become more and more common during the digital age, working from home across state lines has greatly accelerated during the COVID-19 pandemic, and will likely continue to do so for the foreseeable future. As such, taxpayers need to adapt to this new paradigm and think smarter about how the remote work model affects their finances, especially their tax filings. Most especially, you need to consider the tax implications of the state in which you live and the state in which you work. Employers should still document any injury with a written statement from the employee, and photos of the injury and job site if possible.

• When setting up payroll for your remote workers the most important thing to consider is location.
• Non-resident income tax laws vary on a state-to-state basis, but if the non-resident state is listed on your W-2 form, then you’ll likely have to file a non-resident state tax return.
• Even if you work in a different state than where your employer is located, you will file your personal income taxes to the state where you live (tax people call this your “domicile”).
• Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies.
• TurboTax is also up to date with individual state laws, so you don’t need to know if your state allows unreimbursed employee deductions.

Sometimes, if employees live in one state but have been working in another, they’ll receive a credit on their resident tax return to offset the nonresident state tax liability. 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.

Tax Tools

And if you plan on spending half the year in another country, be prepared for the possibility of double taxation. No matter which route you choose, nothing compares to the benefits a remote team brings to your company. Hiring from a global pool of well-qualified candidates, and lowering your overall operating costs, is worth taking on the juggernaut known as payroll taxes. That’s because most countries will require you to open a local branch of your company in that country. Then you’ll need to follow all the local laws regarding minimum pay, benefits, and more for your team members there.

• You should report all of your income to your home state on a resident tax return.
• Employers must generally cover employees under Workers’ Compensation policies based on where they are working.
• When working remotely, taxes can be daunting, especially if you’re employed by an international employer.
• FinanceBuzz is not a financial institution and does not provide credit cards or any other financial products.
• If you are one of the many workers who have moved closer to family, moved to less crowded or less expensive areas, or tried a “workcation” for a change of scenery, your taxes might look different this year.
• People living outside the U.S. who work as independent contractors must remember to save money for their own taxes.
• Employers have found that they benefit from employing a remote workforce.