Remote workers could face double taxation in these states

However, Washington has unique employment taxes and mandatory benefits such as paid family and medical leave, long-term care insurance, and paid sick leave. You should check with each state you have employees in to see what taxes you’re responsible for. Suppose your temporarily remote employee typically works in the same state or location as your organization but currently https://remotemode.net/ works remotely in another state. For a state to consider someone a temporary worker, you must expect the temporary remote worker to return to their permanent location. Otherwise, state governments consider them permanent residents of the other state. Unlike other remote workers, these commuter employees live in another state but work in the same state as your organization.

But if you spent a significant amount of time working remotely in a state other than your home state, then it’s probably best to consult an accountant or tax professional to get advice. One thing you need to know – before you panic – is you can’t be taxed double on your income just because you did your job from two states. Be aware that your state of residence generally has the right to tax your income, no matter where it was earned. The bigger question is whether another state has the authority to, as well. Working from home — or any location away from the office — can come with some benefits.

A simple checklist to plan for your old age, today

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 depends on your particular situation, the company you work for, and the tax laws of the states involved. 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.

Some states even have agreements with neighboring jurisdictions that cut down on double taxation for non-resident workers. For example, New Jersey has a reciprocal personal income tax agreement with Pennsylvania, meaning that any residents of New Jersey who are employed in Pennsylvania are not subject to the latter’s state income tax. Thus, if you’re currently in this situation, keep in mind that for tax purposes you will not be considered a remote worker. Employers have found that they benefit from employing a remote workforce. With a smaller team, or possibly no team at all, in a physical office, they can save big on leasing expensive office space. Yes, they do have to be sure to hire remote workers that they trust—which is why they’ll often run background checks or credit reports in order to screen candidates before making an offer.

Pay, Tax, and Work Laws for Remote Employees

The taxes you pay and the rules for withholding taxes change depending on not just what state you live in, but what county and city. “I have a lot of colleagues who won’t do Ohio taxes because there’s so many weird little rules in all the different municipalities,” Cagan says. A handful of states may even require you to withhold taxes if your employer is based in the state, even if you never physically work in that state. Employers continue to pay payroll tax for remote employees even if they work from home in another state. In these cases, they simply withhold state taxes like income tax as per the tax codes of their employee’s home state.

To get away from my nine-to-five job, I ventured into freelance writing. One thing led to another, and I ended up creating content for SpendMeNot. I have been involved with this site ever since its launch — first as a writer and now as a manager. “I think it’s a pretty cheeky response,” Raymond Edwards, national technical tax director at wealth management firm Aspiriant, said of New York’s policy.

Choose a location

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. In June 2020, to escape the city and take advantage of a backyard, she decided to visit her parents in Arizona for an extended stay. For example, if you live in Rhode Island as a permanent resident, you’ll have to pay taxes on all income, but if your employer is based in Nebraska, you’ll also have to pay income taxes from that state. However, if you also have a side hustle where you make money while residing in Rhode Island, you don’t have to pay taxes on that particular income to Nebraska because you didn’t make that money there.

• If we put everything here, this would be a thick textbook of tax terminology (which might not be as helpful).
• It is important to know the difference between a remote employee and an independent contractor.
• This away-from-office work style was necessary to limit exposure but continued to stick around as work-from-home participants saw the benefits.
• 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.

But if you physically go into the office once a week, the income from that work is taxable by the state where the office is located. Massachusetts has altered its tax scheme specifically in response to the pandemic. Massachusetts workers performing services outside Massachusetts due solely to the state of emergency are treated as though they remained in Massachusetts for tax purposes.

Some cities, counties, and municipalities have income tax requirements above and beyond state requirements that you’ll need to consider. In this case, you should research the state tax reciprocity how do taxes work for remote jobs agreements between the two states. “Each state has its own rules,” said Eileen Sherr, director of tax policy and advocacy with the American Institute of Certified Public Accountants.