In most cases, these filing and payment obligations do not result in double taxation, since the taxpayer’s domiciliary state provides a credit for taxes paid to another state. Either taxpayers ignore the filing obligation, and their employers disregard any withholding requirements, or they dutifully comply with costly requirements that net very little for the inbound state. Employees’ state of residence and the state where they work affect which state and local taxes they pay.

Workers must tackle issues like visas, culture shock, and language barriers. Businesses, meanwhile, must contend with issues of payroll, benefits, and compliance. You may be tempted to ignore the whole situation, figuring that no one will know that you worked remotely. In the event of an audit, states could request records like credit card and cellphone bills, which could reveal your remote work. Such are the complex tax considerations for millions of people who have been telecommuting during the pandemic and working in a different state from their usual workplace.

Where to find November’s flipbook issue

With arguments similar to those that would be raised later in Wayfair,2 TeleBright argued that taxing businesses on the basis of telecommuting employees would impose “unjustifiable local entanglements” and an “undue accounting burden” upon businesses employing telecommuters. “Each state has its own rules,” said Eileen Sherr, director of tax policy and advocacy with the American Institute of Certified Public Accountants. And states may apply the rules differently, depending on what other state the worker was temporarily calling home during the pandemic. Most states tax business tangible property, but only 12 states—Alaska, Arkansas, Georgia, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Oklahoma, Texas, and Vermont—tax some or all business inventory. Taxes on inventory are nonneutral, as businesses with larger quantities of inventory, like manufacturers and retailers, are disproportionately burdened by such taxes. Businesses with little to no inventory escape this form of property taxation even if they use the same amount of government services as businesses with larger inventory tax bills.

Your tax liability could be triggered by the amount of time worked or income earned. States vary significantly in thresholds requiring taxation of nonresidents. Typically, the rule is that employees pay taxes based on the state where they reside.

First things first — should remote workers use tax preparation software?

While the state has instead posted extraordinary surpluses, the NOL suspension has yet to be lifted. Get this delivered to your inbox, and more info about our products and services. Meanwhile, some states — 16 of them, according to the institute — have reciprocal agreements with one another. Basically, if your resident state has this pact with the one where you work, you won’t have to pay in both jurisdictions. Different states have different approaches for when they expect you to tell them about income you earned while there.

This can cause a host of problems for workers and businesses if they are not careful. People who work as contractors must generally be free from restrictions about when they work, how they receive payments, the rates they charge, and whether they can work for multiple companies. Workers who do not meet the definition of contractor may be considered employees under local jurisdictions. Statutory tax credits and negotiated incentives are often tied to the creation or retention of jobs within a designated geographic area (state, locality, enterprise zone, etc.). 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.

Trust G2’s multi-country payroll leader to keep you compliant

Hence, if you live in the State of New Jersey, but the company you’re working for is based in California, you’ll only have to pay taxes to the state where you live. All companies must withhold federal taxes from the salaries they pay to their employees. Although there has been an increase in employees working at home since coronavirus, under tax reform, employees can no longer take federal tax deductions for unreimbursed employee expenses like work-from-home expenses.

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. With so many workers going remote and staying that way, their approach to doing taxes how do taxes work for remote jobs may be changing. Whether you work for a small mom-and-pop or a large, multistate company, being a remote worker can add an extra layer of difficulty to your income tax filing. If you work at a larger company, for example, they can assign you to an office outside of convenience rule states so you can avoid being taxed by a state you aren’t in, Stanton said.

For a state to consider someone a temporary worker, you must expect the temporary remote worker to return to their permanent location. Otherwise, state governments consider them permanent residents of the other state. But the freedom that comes with remote work can also cause confusion when it comes to your taxes. 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.

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