Remote workers must also pay state income tax or local taxes depending on the worker’s state of residence. Also, cities like New York impose local taxes in addition to state and federal tax credits and tax liabilities. In states without reciprocity agreements, a remote worker may be eligible for a tax credit in one state, though they will likely need to file an income tax return in both states. A few states provide “reverse tax credits,” which alleviate double taxation by crediting a worker for taxes paid to their state of residence when their wages are also subject to personal income tax in the source state. Full-time remote workers can only make standard or itemized tax deductions available to all other taxpayers.

Once again, this highlights the practical need to accurately capture the location from which compensation is earned. A growing number of independent contractors and full-time remote workers try to keep up with how taxes work if you work remotely, as tax laws vary by state. https://remotemode.net/ Attempting to summarize international tax laws in a few paragraphs would be as hopeless as counting grains of sand on a beach. For now, let’s stick to tax liabilities for remote workers who live outside the United States but work for companies based in the U.S.

How are remote workers taxed in general?

With so many workers going remote and staying that way, their approach to doing their taxes may be changing. Cannon Advisors’ Bryan Cannon shares some tips to assist remote workers in navigating their 2021 taxes. Catherine Stanton, past chair of the AICPA’s state and local tax committee, says she’s fielded an increasing number of questions about out-of-state remote situations from clients, both employees how are remote jobs taxed and employers. People living outside the U.S. who work as independent contractors must remember to save money for their own taxes. Employers generally do not withhold any taxes from contractors or make payments to government entities on their behalf. Tax rates for contractors vary from country to country, so contractors should consult local guidelines for specific tax rates and savings tips.

remote work and taxes

The amount you can deduct is still limited to the amount of income from business activity. You can also deduct supplies that you buy like paper, printer ink, or supplies for your customers, and you can take the home office deduction. In these uncertain times, it’s essential to educate oneself on the changing tax rules and prepare for filing, giving plenty of time before the deadline. As with many things that happened during the pandemic, decisions about remote work often happened swiftly and without much planning. Nearly half didn’t know each state has different laws related to remote work.

How a reciprocal agreement simplifies state taxes

You can also deduct a percentage of your phone and internet bills based on how much you use them for business. “You don’t have to keep a detailed log [of your phone or internet usage] and figure out to the minute what is for business or personal use,” Cagan says. “But you have to have a general sense of how much of it really is business and don’t round up.”

  • It’s going to become more of a hot-button issue as our workforce continues to decentralize and as people continue to seek out low-tax states to reside in; see, it turns out that incentives matter.
  • The request is approved, and the employee is paid from the Minneapolis locality pay table from Jun. to Nov. ($78,775) and paid from the Phoenix locality pay table from Dec. to May ($75,906).
  • In that situation, the teleworker can fulfill the reporting requirement by reporting to the agreed upon alternative office at least 2 times per pay period and the alternative office becomes their official duty station.
  • “If you’re moving state to state, talk to your tax professional, let them know your situation and then they can better advise,” Obih says.
  • These individuals may be denied a tax credit in their home states, meaning they may be forced to pay income taxes in two different states.
  • They may include payments, registration, insurance, rent for parking, licenses, repairs and maintenance, and parking and toll fees.

The employee works 10 days per pay period; teleworks 8 days from their home; reports to the satellite office in Springfield 2 days per pay period; and Springfield, MO is their official duty station. An employee’s official worksite will depend if they are a teleworker or a remote worker. Telework refers to a work flexibility arrangement, approved in advance by a supervisor, that allows an employee to work from an approved alternative worksite other than the employee’s official duty location for an approved number of days each pay period. Remote work is a permanent duty station designation (usually the employee’s residence) and annotated on form SF-50, Notification of Personnel Action. If your employer operates out of another state, you typically won’t have to pay two sets of remote work taxes.

Top Job Seeker Tax Deductions

Employers that hire out-of-state employees who predominantly work from home must report state taxes to the states where their remote employees live and not the state where their companies are registered. 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. Across the world, more and more businesses are transitioning to a flexible work model. Doing so requires your company to track where employees are working today and where they want to work in the future. Your processes need to accommodate an array of remote working arrangements, such as permanent remote requests, hybrid schedules, and even workers who may want to regularly change locations. 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.

The goal of throwback and throwout rules is 100 percent taxability of corporate income, but the result is a complex, uncompetitive system that can drive businesses out of some states by yielding high—sometimes astronomically high—in-state tax burdens. If working remotely from another state means double taxation, a remote work benefit is not much of a benefit. Accordingly, companies that prioritize remote work may either shift some of their functions out of state (providing an out-of-state office to which to assign out-of-state workers) or even move their operations outright. The onus is on the taxpayer to know the rules as they apply to them, where they need to pay taxes, and how much. Given the growth in popularity of remote work, it’s very possible that tax law could change in the next few years to accommodate the changing workforce. Several bills under consideration would change the way remote workers are taxed based on their location.

Yes, with supervisory approval, teleworkers may telework up to 8 days per pay period based on the duties of the position and the amount of onsite activities that must be performed. The supervisor may require the employee to report to the office more frequently based on the needs of the agency in accordance with the provisions outlined in the telework DR. Employees performing similar functions must be treated fairly and equitably. You can exempt yourself from this double taxation with the convenience rule. This rule indicates that you might not have to pay twice as long as your employer requests you to work in this remote location for the company’s convenience.

You apply this percentage to your home expenses to determine what amount might be a business expense. The standard method, also known as the direct method, has no maximum deduction limit. To make home office deductions this way, you need to keep track of all your home office expenses, including costs related to repairs and maintenance.