Intro to Remote Worker Taxes
Be sure to review relevant state laws (or check with our free and available Tax Expert) to determine whether or not you will have to file sales and use taxes in the additional states. If your remote employees are located in the same state as your corporate headquarters, you may follow the same state laws concerning your income and employment taxes. Even if you are working in a state other than the one your employer is located in, you file personal income taxes with the state you live in (tax folks call that your domicile).
If an employee lives and works in several states, and there is no reciprocal agreement between these states, then the employee will need to file two tax returns, one from each state. You will then have to withhold taxes from the states your employee works in. Employees will have taxes withheld only in a single state.
If teleworkers are required to pay federal and state income taxes, you will have to withhold these taxes from their pay. If the remote employee works in the same state as the business is registered in, you will withhold the state income taxes and unemployment insurance (SUI) taxes for that state. In general, remote workers in the U.S. are subject to both income tax and payroll taxes, so you will need to pay taxes both in the state where you live and in the state you work (or in which your employer is headquartered).
Remote workers may create extra work for employers, who need to ensure they are following the withholding rules to withhold and accurately report salary taxes. Not having to worry about payroll taxes is just one of the reasons, so many companies are opting to hire remote workers. A person living and working remotely in Washington, for instance, could do the job for a California-based business and not need to pay California’s taxes.
Remote workers who are located in those states but who are not doing work in other states must file only federal tax returns. However, remote workers, who go to other states and work from there might need to file state tax returns as non-residents. For example, if you live and work in Indiana, but your employers’ geographic location is in New York, you would report all your income on your state income tax return, which you file with the Indiana Department of Revenue. For example, if the business is located in North Carolina but employees live in New York, the employer would have to file taxes with both states.
If you have employees on the payroll working remotely, then you need to consider their residency status for tax purposes. With telecommuting taxes, there are many different things to think about, including where you are located, where your business is located, and where most of the work is done. If you have a remote workforce who lives in different states, you might be facing surprising tax bills. If you have a staff working in a state other than where you usually conduct your business, your tax liability is based on the notion of you doing business there.
In some, simply having the employee be located in their state may be considered a doing-business action, and you will also need to comply with that state’s tax rules. An employee working remotely from one state may trigger income tax nexus while using an independent contractor might not. Unlike full-time and part-time employees, self-employed and independent contractors in New Hampshire can owe state taxes on their income under certain circumstances.
Employers that employ workers outside of the employee’s home state must meet their obligations to withhold state taxes based on the individual circumstances. If those expenses meet the employer’s convenience test, they become deductible to employees; if they do not, employees cannot claim the deduction as business use of any such business-related expense or at home. Whether or not the worker works inside or outside the office (or a mix), the government wants to see taxes due on the income earned by each worker paid in a timely fashion. Employees — As an employee, you are not responsible for paying the taxes yourself, but rather, the company will take care of your taxes for you and pay income taxes and wages.
You will find a rundown of steps your business needs to take to meet its tax obligations, and ensure that your remote worker pay taxes to your business. If your business is considering hiring remote employees working out of your corporate headquarters in the United States or internationally, you need to look at your employment, compensation, and employment-related tax policies and procedures. You should also look into your state’s tax laws in the states where you are planning to operate to determine if they would require you to pay a non-resident fee to work in their state.
Keep in mind that states that do not collect taxes on individual income generally also require a taxpayer to file returns, and taxpayers living in one of these states should file non-resident tax returns for states that receive a W-2. If you are an American citizen working remotely from another country, you might have to fill out a few forms, but for the most part, you owe taxes only in the countries you live and work in. Tip: Even if you work mainly with contractors, you still owe certain obligations under the tax code, including filing 1099 forms for each telecommuter/contractor for you paid more than $600 during the tax year.
The IRS offers additional guidance for understanding remote worker pay taxes and independent contractor designations, which may help you clarify differences to pay and remote worker pay taxes appropriately, according to proper labor provisions. The IRS’s webpage, Independent Contractors (Self-Employed) vs. Employees, maybe a good place to read up more so you will understand more when discussing matters with your tax professionals. If you have employees located remotely in different states, you will have to look at employment laws and tax laws for each.
My state does not collect any income taxes on earnings. Do I still need to file taxes with my employer’s state?
If you don’t pay state income tax in the state where you work, you may still be able to get a refund for taxes withheld from your paycheck. Check your W-2 form when it arrives to see if withholdings from another state are listed. If so, you may be eligible for a refund and must file a return in that state. If a different state’s taxes are listed on your form, that means taxes were taken out of your earnings, and you might be entitled to reimbursement. In this case, you must file your return with that state.
Where and how do I pay my state taxes when I live in a different state than my employer as a remote worker pay taxes?
Where can I pay the state’s taxes if I live in a state other than my employer’s location. As a telecommuter, you are required to pay taxes to the state where you live for all of your earnings (if the state has a personal income tax). This is true regardless of where your employer is located. However, if the employer is located in a state claiming your state taxes, you are generally eligible for a tax credit on any amounts paid in a non-resident state so that your income is not taxed twice. Contact our tax experts at PriorTax to get instructions on claiming this credit in your state.
Note: If your business is located in Arkansas, Delaware, Nebraska, New York, or Pennsylvania, those states apply the Employer Convenience Test to determine how wages earned by teleworkers should be taxed. Under the convenience test, the non-resident employee’s income is attributed to their physical place of residence only if their employer requires them to work remotely. But if you are working remotely because of convenience, then your income may be subject to taxation by the state of the employer. Because each of those states has its criteria, you will need to check your employer’s state’s department of revenue website to see how its convenience test applies to you.
There are no special tax deductions and benefits for telecommuters and remote workers?
It would help if you were self-employed to deduct expenses related to your remote worker paying taxes. If you are an independent contractor or remotely working for hire, you may deduct some expenses related to the work in your taxes. Here are some common tax deductions for being an independent business owner. These work-related expenses are not deductible if you are a traditional employee working remotely/telecommuting.
I am working remotely for a company that is located in another state. Do I have to file taxes in both states?
If both your state and the employer have an income tax, then you must be ready to file your state taxes. You will file as a resident in the state you live in and, if taxes are collected from the employer’s state, file a non-resident return in the state you work in.
Does my job working remotely makes me a freelancer or self-employed?
If you get your paychecks on a W-2 form from an employer, you are considered to be employed. However, the IRS uses specific criteria to determine if an individual is an independent contractor (self-employed) or employed. If you are not sure of your status, you can read those criteria here.
Can remote workers claim home office tax deductions?
It depends on the type of work you do. The home office deduction applies only to self-employed taxpayers. However, as long as your employment qualifies you as an independent contractor, you may be able to deduct part of the cost of your home office. Note: If you are employed and receive a W-2 from your employer, you cannot deduct home office expenses.
The best online tax preparation options for dependent contractors and remote worker pay taxes.
Even if you are in a nontraditional work situation, your tax-filing experience should still be simple. PriorTax has simple, easy, straightforward options for filing taxes online. Reach out to our tax experts at PriorTax, who are free and available. And if you are an independent contractor, PriorTax Self-Employed is specifically tailored for your unique tax situation and includes access to a Tax Pro with experience in filing taxes for sole proprietors.