Remote work tax considerations: How and where to pay

Consequently, remote workers employed by companies based in ‘convenience states’ might face double taxation. The same rules apply to full-time employees who live in the same state where they work and go to the office at least a few times per week and remote workers that do most of their work from home. Since the start of the Covid-19 pandemic, there has been a dramatic increase in remote and hybrid work. For regular W-2 employees, working from home may have a minimal impact on your taxes, but there are plenty of situations where it can get complicated. If you work and live in different states and municipalities or if you lived in multiple states throughout the year, you may have to file state or local taxes in each jurisdiction. The advantage to hiring remote gig, freelancers and remote contractors is that contractors are responsible for their own tax.

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. Remote workers must also pay state income tax or local taxes depending on the worker’s state of residence. Also, cities like New York impose local taxes in addition to state and federal tax credits and tax liabilities.

Where can I find important terms relating to telework and remote work and their definitions?

This usually means that the business has a physical presence in the state, which can mean property, sales, or employees. If a company has its offices in State A and employees working remotely in State B, State B may claim that a part of the company’s income taxes must be paid to that state. Like the temporary remote workers mentioned before, digital nomads often have to file non-resident tax returns depending on their stay in a given state. If their trips are shorter, they only need to pay state tax to the state where they reside—their home 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.

• For example, some states treat telecommuters as creating a tax nexus, while others have issued guidance stating that a nexus cannot be established solely by employees telecommuting from within the state due to COVID-19.
• Location also matters when considering companies with central locations that employ remote workers across the United States.
• For a breakdown of payroll taxes, consider utilizing our payroll tax table for employers.
• To avoid this, it’s important to notify your job where you’re living so it can withhold tax from the correct state.
• Traveling for work across state lines can put you in a unique tax situation because you might face double taxation.

Depending on where you’re logging in to work, you may have to navigate tax codes from different states or cities. And while working from home can save your employer from office expenses, the same can’t always be said for you and your tax bill. Let’s cut to the chase by taking a quick look at federal taxes from the perspective of the remote working employee. Always make sure they have the most recent information regarding your residency. Verify your employer is re-evaluating and making necessary adjustments to your tax withholding. Taxes make up just one part of the enormously complex equation of working and hiring internationally.

Your Top Tax Questions About Working Remotely, Answered

Another type of remote employee you might have is a temporary remote employee. A temporary remote worker is an employee who typically works in one how are remote jobs taxed state but who currently works elsewhere. Your employee might need to work in another state temporarily while they finish up selling their home.

If they live in a convenience rule state, they often need to pay taxes to their employer’s state or file for exemption via a reciprocal agreement. Remote workers who work from home earn an income in their state of residence and therefore pay state income tax to their home state. In most cases, the remote employee would not have to pay taxes to their employer’s state.

Remote Employees—Not Independent Contractors

In this guide, we’ll explain how taxes work if you work remotely and show you how to increase your tax refund. Employers are required to withhold income tax and the https://remotemode.net/ employee portion of Social Security and Medicare taxes from employees. However, this isn’t as simple as withholding monetary amounts from local employee paychecks.

FUTA is the Federal Unemployment Tax, which provides compensation to workers who lose their jobs. You pay FUTA taxes for remote workers the same way you pay for FUTA taxes for local employees. But they also take on risks, including unpaid holidays, no sick pay, less insurance, and limited long-term job security.

For internationally-based remote workers you can find services such as Shield GEO, or other global employment organisations (GEO). They process payroll, withhold taxes and ensure compliance with all the relevant employment laws. There are many thousands of GEOs and as yet, none that covers every country in the world. It’s essential to pre-vet any GEO and have a clear agreement, as it’s not uncommon for GEOs to outsource locally or employ very opaque pricing. As with any other employee, the employer will need to withhold income taxes and pay insurance contributions (e.g. NI in the UK and SUI in the US).