Working remotely means that you work somewhere other than your company’s office some or all of the time. If you are working remotely in a different state than your employer, that will likely affect your tax situation. Here are some frequently asked questions about remote work and how it affects state tax filing.
I work remotely for an out-of-state employer. Do I need to file taxes in two states?
Assuming that your state and your employer’s state both have income tax, 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 taxes are withheld by the work state, you’ll file a nonresident return for the state where you work.
Where do I pay state taxes if I live in a different state than my employer?
As a remote worker, you’re required to pay tax on all your income to the state you live in (if your state has personal income tax). This is true no matter where the source of your income (your employer) is located.
If your employer’s state withholds income for state taxes, you can likely claim a tax credit for the amount paid to your nonresident state, so your income isn’t taxed twice. Search the TaxSlayer knowledgebase for instructions about claiming the credit in your state.
Note: 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’ wage 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.
Since each of these states 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.
My state doesn’t charge income tax. Do I have to file taxes in my employer’s state?
Check your W-2 when it arrives. If another state’s withholdings are 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.
Are there tax deductions for remote workers?
In order to deduct expenses related to your remote job, you must be self-employed. If you are an independent contractor or working freelance, you can write off certain job-related expenses on your taxes. You can get more info about common self-employed tax deductions here.
If you are a traditional employee working remotely/telecommuting, those job-related expenses are not deductible.
Can remote workers qualify for the home office deduction?
It depends on your employment status. The home office deduction only applies to taxpayers who are self-employed. As long as your work situation qualifies you as an independent contractor, you can write off a portion of your home office expenses.
Note: If you’re an employee and you receive a W-2 from your employer, you won’t be able to deduct your home office expenses.
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 certain criteria to determine whether a person is an independent contractor (self-employed) or employed. If you’re unsure about your status, you can read those criteria here.
The information in this article is up to date through tax year 2021 (taxes filed 2022).