Remote work creates a spectrum of state and local tax issues

Instead of tax withholdings from the state where the employee does the work, withholdings come from the state where the employee lives. During the pandemic, application of the convenience-of-the-employer rule has been inconsistent. For instance, Philadelphia took the position that if employees living outside the city were required to work from home by the employer because of the pandemic, those individuals were not subject to the city’s wage tax. Conversely, Pennsylvania took the position that employees working in a different jurisdiction solely by virtue of the pandemic would be treated as if they were in whichever jurisdiction they would have been pre-pandemic. Services, intangibles, and sales of other than tangible personal property are generally sourced using either market-based sourcing or the cost-of-performance method.

While Minnesota has a threshold that would exempt a taxpayer earning a median income in-state for more than 30 days, it does not earn the full 5 points due to having a high wage threshold rather than a statutory 30-day threshold. If you’re unsure how your state or local tax codes affect you, then it’s a good idea to work with a local tax professional to avoid overpaying or underpaying your taxes. With the regular method, you’ll need to keep records of your eligible home office-related expenses such as homeowners insurance, mortgage interest, utilities and repairs. You’ll be able to deduct a percentage of eligible expenses based on the size of your workspace. If your home office is 10% of your home’s total square footage, then you can deduct 10% of the eligible expenses.

Understand the state and local tax codes where you work and live

Massachusetts imposed a convenience of the employer rule for the duration of the pandemic, then rescinded it when New Hampshire brought a challenge against the rule to the U.S. Meanwhile, New Jersey Governor Phil Murphy has pushed to institute a retaliatory convenience of the employer rule along the lines of Connecticut’s. Arkansas also had a convenience of the employer rule but repealed it in 2021. For example, New Jersey’s single reciprocity agreement with Pennsylvania exempts a greater share of commuters into the state than Illinois’s four reciprocity agreements with Iowa, Kentucky, Michigan, and Wisconsin combined. “If you’re moving state to state, talk to your tax professional, let them know your situation and then they can better advise,” Obih says.

Consider partnering with a payroll and HR provider who has tax professionals on staff. 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 state but who currently works elsewhere. For example, your employee’s spouse is in the middle of a job transition. Your employee might need to work in another state temporarily while they finish up selling their home.

Questions About Employee & Contractor Forms?

Because taxation of remote workers is still in its relative infancy, some states are still adjusting to nonresident remote workers employed by out-of-state companies. Two additional states, New Hampshire and Tennessee, only tax interest and dividend income. If someone lives in a state that doesn’t https://remotemode.net/ withhold income tax but works in a state that does, they’ll usually pay nonresident taxes in the state where they work. The same is true if an employee works in a state that doesn’t withhold income tax but lives in a state that does—they’ll pay resident state taxes for where they live.

But if you work in a different state, then you’ll usually need to file a nonresident tax form in the state where you worked, listing the income and taxes you paid and earned in that state. 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. However, some states use “convenience of employer” rules that require you to pay taxes in your state, not the employee’s state. Additionally, double taxation risks, such as those for employees who commute across state lines, can still exist in some states.

Building a remote team?

Since the employee has worked entirely in Louisiana, this is the state where the employee’s work is localized, even if the employer’s corporate office is in Arkansas. For instance, if you live in Maryland but work in the District of Columbia, you only need to worry about having taxes withheld for Maryland and filing a tax return there. “If you spent a significant time working out of another state in the last year, how do taxes work for remote jobs you very likely will have an income tax liability there,” said Jared Walczak, vice president of state projects for the Tax Foundation. A recent Harris Poll showed that many people are “not very” familiar with the tax laws in their state of residency or the state where their employer is located. Taking time to read up on the tax implications of remote work will help to stave off frustrating hiccups down the road.

• While this flexibility is cherished by many, it can lead to tax intricacies, particularly if you operate from a state different from your employer’s base.
• Unlike employees, independent contractors are business owners themselves.
• However, the credit may not fully eliminate the amount paid to the second state if its tax rate is higher than where you live.
• Discover the differences between freelancers and full-time employees here.
• However, your home office deductions cannot exceed your business’ net income (the gross income it earns minus regular expenses).

“Don’t have a fear of taking the deductions and the tax credits and benefits that are available to you just because of an audit,” she says. To avoid paying taxes on the same income twice, the taxpayer can credit the taxes paid in their non-resident state against their home state’s tax liability (or vice versa depending on which state has higher taxes). Remote workers who live and work in different states need to pay extra attention to state and local taxes. The 2017 Tax Cuts and Jobs Act suspended the home office deduction through 2025 for employees who “receive a paycheck or a W-2 exclusively from an employer,” according to the IRS. If you receive a Federal W-2 form from your employer then it doesn’t matter if you work from home 100% of the time, 50% of the time or not at all – you can’t deduct work expenses to reduce your taxable income. But according to Obih, you can ask your employer to reimburse you for office expenses, co-working space fee or whatever else you have to pay for out of pocket.

The programs, which are designed to ensure the financial stability of members during the strike, include loans, loan deferrals, payment skips, and loan modifications. Back in 2019, one Michigan credit union offered a limited loan just for strikers and those directly hit by the UAW strike at General Motors, which ended up running 40 days. The terms were more affordable than a credit card rate — which was then 18% or higher. That product was announced roughly two weeks after the strike at GM began on Sept. 16, 2019. For UAW strikers who might be looking for outside work, it’s important to note that some strike pay could be at risk if you make too much money with a side job during the strike. Auto lenders are likely to offer different options for those facing financial hardships, including being on strike, dealing with a job loss or coping with a medical emergency.

• The lack of a state income tax often attracts both individuals and businesses.
• Any tax professional preparing income tax returns for compensation needs to have this number.
• The ongoing shift to remote work calls into question the satisfaction of these existing jobs requirements, the ability to renegotiate these benefits, as well as the approach to pursuing similar credits and incentives in the future.
• Localities within your state, like local taxes specific to your town or city, influence what you pay at the end of the year.

Even when states provide a credit, workers will have to shoulder that double tax burden until their tax returns come. State tax withholdings for remote employees are similar to withholdings for in-state employees. These come in the form of income taxes and State Unemployment Tax Assessment (SUTA) taxes. However, state taxes for remote workers can differ based on where the employee works and lives. The onus is on the taxpayer to know the rules as they apply to them, where they need to pay taxes, and how much.