State and Local Tax Considerations of Remote Work Arrangements

If you have several employees working remotely, you may want to hire a payroll service to help you sort out these taxes. No, remote workers aren’t normally taxed twice for the state they live in and for the state their employer is based in. You should research exactly what taxes apply to you for working remotely in the individual state you’re working in. You should also check with your employer about any additional taxes if they’re located in another state. Alternatively, if you prefer a DIY approach or have relatively straightforward tax circumstances, reliable tax software can assist you in preparing and filing your taxes correctly.

  • In this case, you should research the state tax reciprocity agreements between the two states.
  • 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.
  • POLICY CONSIDERATION AND BEST PRACTICE – To the extent they do not already, policymakers should consider conforming their state’s personal income tax laws to federal provisions most relevant to remote work to ease compliance, facilitate enforcement, and increase predictability.
  • While this might lead to only minor changes in amounts allocated to each province and territory, it could trigger requirements for filing provincial corporate tax returns in Alberta or Quebec (i.e., if the corporation is not otherwise taxable there).

The law bans bounty hunters or bail agents from apprehending California doctors and taking them to another state to stand trial. It even prohibits state-based social media companies, such as Facebook, from complying with out-of-state subpoenas, warrants or other requests for records to discover the identity of patients seeking abortion pills. These are among the hundreds of laws that take effect Jan. 1 in the nation’s most populous state. Healey has said the wage floor should be adjusted “over time” to keep up with the cost of living, but she did not advocate for raising it before the legislative session ends in July. All told, workers in nearly half of US states were slated to see some type of increase in the new year. “If there was more of a sign that it’s going to last forever, people would be more inclined to utilize it,” he said.

Case Studies: Potential Scenarios of Remote Work Taxes

We provide a high-level overview of some of these non-tax requirements only to illustrate the breadth of issues across legal and policy subject matters; therefore, we do not make any policy recommendations on this topic. Many states have reciprocity agreements with other states for income tax purposes. This means that if a source state (the state from which income is derived) and the state where the remote worker lives have a reciprocity agreement, the remote worker will only file state income taxes for their home state. Reciprocity agreements are more common between neighboring states, such as Ohio and Kentucky or Maryland and Virginia. While remote work is not necessarily new, the percentage of people who work remotely instead of commuting to an office every day has risen in the past few years.

How Remote Work Taxes Are Paid

Generally, if you spend more than six months in a particular location, it’s likely that you’ll be considered a resident there. In addition to considering these treaties, it’s essential to understand any applicable home office deductions or expenses that you may be eligible for as a remote worker. Some countries allow deductions for expenses related to maintaining a home office, such as rent or utilities. This means that if you are working remotely from a different state for your employer’s convenience rather than your own preference, both your home state and the state where your employer is located may have a claim to tax that income. To benefit from a reciprocal agreement, it’s important to check with your state’s tax agency to see if they have such agreements with other states.

What are the new income tax brackets?

It’s important to consult with a tax professional or review the specific tax laws of both your home country and the host country to determine your tax obligations. Reciprocal agreements can make things easier for remote workers when it comes to paying taxes and can also help boost the economy. However, it’s important to carefully consider the advantages and disadvantages before deciding to enter into such an agreement. Reciprocal agreements typically apply only to state income tax, so you may still need to pay other taxes like sales tax or property tax in the state where you work remotely.

  • 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.
  • However, remote workers who travel to other states and work from there may have to file a nonresident state tax return.
  • To qualify for the home office deduction, you must meet certain requirements set by the IRS.
  • Local zoning regulations might require a remote employee working from home to get a zoning variance from the locality.
  • Residence may be established by a statutory test, which often considers the amount of time that a person has spent in that state, although the exact test varies.
  • Verify your employer’s decision is consistent with its written policy and procedure.

For example, if you are domiciled in a state with no income tax, you will not owe state income tax on your income earned in that state. However, you may still owe federal income tax on your income, regardless of where you are domiciled. The amount of taxes that an employee pays is also affected by the employee’s filing status. For example, married couples filing jointly pay a lower tax rate than married couples filing separately. The employee’s filing status is determined by the employee’s marital status and the number of dependents that the employee claims.

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However, some states don’t require organizations to report taxable employee benefits they offer to their remote workers, which is why you must check state tax laws for each remote worker you hire. Regardless, digital nomads from the United States must continue paying taxes to their home country. This situation also applies to other countries like France and the United Kingdom. When taxing remote workers in these countries, this double taxation can make it challenging to move.

  • That way you’ll at least have a basic understanding of your tax situation that you can follow in the future.
  • In other cases, the registration process must be done through a paper submission for each tax or fee type to individual state and local tax authorities.






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