Working remotely often means working from a state different than where your company is headquartered. This situation may impact where and how you pay state taxes. You may need to navigate the tax laws of both your employer’s state and the state where you live. Here are some frequently asked questions about remote work and how it affects state tax filing.
Where do I pay state taxes if I live in a different state than my employer?
As a remote worker, you must pay tax on all your income to the state you live in (excluding Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming; these states do not have personal income tax). This is true regardless of your employer’s location.
If your employer’s state withholds income for state taxes, you can typically claim a tax credit for the amount paid to your nonresident state, so your income isn’t taxed twice. If you need further clarification regarding how to claim the credit in your state, learn more here.
Are there states where I might be double taxed?
No, federal law does not allow two states to tax the same income. If the state where you work has a reciprocal tax agreement with the state where you live, then your work state shouldn’t withhold taxes from your paycheck.
Don’t worry – you won’t be double taxed even if you don’t have a reciprocal tax agreement. In this case, it’s critical to file a state return for both states to ensure everything is documented and you get money back for any unnecessary income withheld from your work state.
If your company is based in Arkansas, Delaware, Nebraska, New York, or Pennsylvania, these states apply a “convenience of employer” test to determine how remote workers’ income should be taxed. Under the convenience test, a nonresident employee’s income is sourced to their physical location only if the employer requires them to work remotely. But if you’re working remotely for your own convenience, your income could be taxed by your employer’s state if they are headquartered in one of those five states.
Since each state has its own criteria, you’ll want to check the Department of Revenue website from your employer’s state to find out how the convenience test applies to you.
I work remotely for an out-of-state employer. Do I need to file taxes in two states?
If your state and your employer’s state both collect income taxes, you should be prepared to file state tax returns for both states. You’ll file as a resident for the state where you live, and if the work state withholds taxes, you’ll file a nonresident return for the state where you work.
My state doesn’t charge income tax. Do I still have to file taxes in my employer’s state?
Check your W-2 when it arrives. If your employer reserved income from your tax return in their state, but your state doesn’t collect income tax listed on the form, it means taxes have been withheld from your income, and you may be eligible for a refund. In that case, you’ll want to file a return in that state.
How hybrid employees are taxed
Hybrid employees might find their tax situation more complex if their home office is in a different state than the company. Typically, these employees are taxed by both the state where they live and the state where they work, with exceptions depending on each state’s tax laws. However, as mentioned previously, certain state reciprocity agreements are in place to simplify this issue.
Read also: Filing Taxes When Living in One State and Working in Another
Does working remotely make me self-employed?
Working remotely (working from home, telecommuting, etc.) is not the same as being self-employed. If you receive a W-2 from your employer, then you are considered an employee. The IRS uses specific criteria to determine whether a person is an independent contractor (self-employed) or employee.
Remote work tax deductions
As an independent contractor or freelancer, you can write off certain job-related expenses on your taxes. Unlike traditional employees who work remotely or telecommute and cannot deduct these expenses, self-employed individuals can benefit from several common tax deductions. For example, if you qualify as an independent contractor, you’re allowed to deduct a portion of your home office expenses.
Here are examples of several common self-employed tax deductions.
Read also: Everything You Need to Know About the Home Office Deduction
Note: If you’re an employee and receive a W-2 from your employer, you won’t be able to deduct your home office expenses.
Online tax filing options for remote employees and independent contractors
Even though you have a non-traditional employment situation, your tax filing experience should still be straightforward. TaxSlayer has four different, easy-to-use online tax filing options. Check out our product lineup, and choose the one that’s right for you based on the support you need.
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