How Do Taxes Work if You Work Remotely: A Guide to Navigating Your Taxes

Companies that offer group term life insurance, bonuses, vehicles, employee stipends, and other taxable employee benefits to remote workers must report these benefits when filing state taxes. 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.

Each state has its own approach to taxation, and depending on the physical location where your employees live and work, this tax obligation varies. 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. However, remote workers who travel to other states and work from there may have to file a nonresident state tax return.

How does remote work affect employee benefits?

1. 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.
2. US citizens who live abroad and work for a US company must file a tax return in the United States and pay taxes in their country of residence unless they’re earning over $100,000 per year.
3. There is also a simplified method that is up to $1,500 (up to 300 square feet x $5 per square foot) that gives you a flat deduction without taking into account individual home expenses.
4. For example, suppose your organization is based in New York, but you have an employee working from home in Utah.
5. When they do not have a permanent home, they can choose a place where they spend most of their time.

If your job is in California but you’re living full-time and working remotely in Texas, for example, you wouldn’t have how does remote work get taxed 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 taxation of digital nomads who live and work remotely while traveling to different locations can be complex.

Remote work taxes outside the United States 🌏

Additionally, salaried employees have some protection under federal statutes. Under federal law, employers are not allowed to reduce salaried workers’ earnings due to partial workweek absences based on court appearances. If you’re working in a state that has a reciprocal tax agreement with your home state, then your work state shouldn’t withhold taxes from your paycheck, and you won’t be required to file a return for both states. This article will help you understand out-of-state remote work tax implications, including which individuals are affected by these laws and your responsibilities as an employer.

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Mark Klein, partner and chairman of the New York law firm Hodgson Russ, predicts continuing conundrums as companies in bigger, often more-expensive cities lose talent to other states. No longer tethered to their employer’s business location, many workers have transferred their residency to another state. US companies that want to employ an international remote workforce cannot do so directly unless they register a legal entity in a different country or utilize the services of an Employer of Record organization.

To meet this test, the employer must require the employee to work remotely rather than the employee simply choosing to do so out of their own convenience. Companies also face tax consequences when they employ workers who work remotely from different states. Klein warns that convoluted and varied state taxation laws mean the threat of double taxation is an all-too-real problem, given the increase in remote working.

You could be responsible for additional employer withholding and sales tax responsibilities if you have workers in another state who don’t work in a company office. However, this differs based on the states where your employees live and where your organization is located. At the federal level, employers must withhold federal income tax, Social Security taxes, Federal Unemployment Tax (FUTA), and Medicare taxes for all W-2 employees, including remote workers.

As a last resort, take extra steps to establish residency in a single country. Try limiting the time you spend in other places or cutting ties that can indicate closer connections elsewhere. Some digital nomads have residency in tax-friendly countries to legally lower their tax burden.