According to WFH Research1, in August 2023, 13% of full-time employees were fully remote, and 30% worked a hybrid schedule. With so many people working from home, employers and state governments face new challenges regarding taxation, nexus, and employee benefits. Each state has its own approach to taxation, and how do taxes work for remote jobs depending on where you live and work, this tax obligation varies. If you’re still working remotely in a different state, it’s also a good idea to make sure your employer knows so it will withhold taxes from your paycheck correctly. That way, you can reduce the chances of potential problems at tax time next year.
Employees on a remote work schedule sometimes get confused if they live in one state and work in another. If the employee and employer reside in the same state, there likely won’t be much complication when tax time comes. Meet with a TurboTax Live Full Service tax expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.
Taking on the potential talent and tax implications of remote work
States with convenience of the employer rules include Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania. Because the federal government levies these taxes, where you live doesn’t matter. If you have employees in a state, are you “doing business” in that state? Nexus is the legal term for whether a state has the power to tax your business.
However, when employees work remotely from another state, things can get complicated. Generally, the state where your employee lives and works is the one that taxes them. You should speak with the labor and unemployment agencies of each state your employees live and work in to ensure you follow all the proper tax procedures and withholdings.
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For example, suppose your organization is based in New York, but you have an employee working from home in Utah. Spurred by the pandemic, companies are installing employee-tracking software to monitor productivity. She is considering working for an employer to supplement her consulting work. The back-to-the-office campaign by many employers has run into resistance from workers.
- The important thing is to keep itemized receipts or detailed records of everything.
- However, if the remote employee works in a different state, they likely pay state income tax to their home state rather than their employer’s state.
- Remote work has been soaring in popularity since the pandemic forced many workers home early last year.
- 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.
- However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states.
- It’s also important to consult a tax professional, since the tax situation — as well as what it takes to be a resident of that particular state — varies drastically by state and is far from intuitive.
Some states mandate employee or employer participation in disability insurance programs that pay employees for non-work-related short-term disabilities. Companies also face tax consequences when they employ workers who work remotely from different states. “The amount of net worth that has moved out of the big cities has been staggering; COVID-19 has opened people’s eyes,” Klein said. “Even in high-level corporate professions, lawyers and bankers are now just as effective working remotely as they were in an office.
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Many people who found themselves working remotely took the opportunity to relocate to low-tax states or areas that better suit their lifestyle, such as the beach or mountains. Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. Charlette Beasley is a writer and editor at Fit Small Business focusing on payroll.
Our compensation plans handle the specifics of your tax requirements, down to the details of your locality. An employer of record (EOR) is an excellent resource for employees and employers struggling with taxes. An EOR is a third party that ensures you are one hundred percent compliant with the specifics of your tax situation. 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. The state agency that administers unemployment taxes is different from the agency that pays unemployment benefits. 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).