The 2023 ROAM Index: How State Tax Codes Affect Remote and Mobile Workers Foundation National Taxpayers Union

Some countries will impose a social security tax on wages of remote employees, but the U.S. has totalization agreements with some countries, like Canada and France, to avoid double taxation. If remote employees are required to pay federal and/or state income taxes, you will need to withhold those taxes from their paychecks. The IRS has a list of state government websites for you to use when starting your search. If you have several employees working remotely, you may want to hire a payroll service to help you sort out these taxes. Employers are required to withhold income tax and the employee portion of Social Security and Medicare taxes from employees.

For now, though, remote employees — and tax professionals — are going to have to navigate labyrinthine state tax laws one by one. Geographic location is one of the critical factors that determine a remote worker’s tax liability. Hence, being familiar with state and local tax laws can help you spend less on taxes. Consequently, remote workers employed by companies based in ‘convenience states’ might face double taxation. According to the so-called convenience rule, employers must report taxes to the state where their organization is based if its employees work remotely out of convenience.

How Do Taxes Work if You Work Remotely: A Guide to Navigating Your Taxes

Some states do not receive a penalty but may in future editions of this ranking. Massachusetts imposed a convenience of the employer rule for the duration of the pandemic, then rescinded it when New Hampshire brought a challenge against the rule to the U.S. Meanwhile, New Jersey Governor Phil Murphy has pushed to institute a retaliatory convenience of the employer rule along the lines of Connecticut’s.

While Minnesota has a threshold that would exempt a taxpayer earning a median income in-state for more than 30 days, it does not earn the full 5 points due to having a high wage threshold rather than a statutory 30-day threshold. As businesses enter the clichéd “new normal,” it may appear everything has changed. In fact, the issues that have surfaced because of the increased remote workforce are not new.

Remote Employees Vs. Contractors

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. If you spent most of the year living out of a van or bouncing between Airbnbs, you probably want professional help with your taxes. Depending on where you lived, how long you were there and how much money you made, you could owe taxes in multiple states and cities, a problem athletes and entertainers have had to deal with for years. As the name suggests, the simplified option makes calculating your deduction amount easy. You can deduct $5 per square foot of office space for up to 300 square feet (or $1,500).

For employers not in the states listed above, you are required to pay SUTA withholdings. Some states follow the federal unemployment tax assessment rates, while others apply complex formulas and percentages to their SUTA requirements. No, remote workers aren’t normally taxed twice for the state they live in and for the state their employer is based in. You should research exactly what taxes apply to you for working remotely in the individual state you’re working in.

Filing multiple state returns gets expensive quickly. How can I save money while staying on top of my state taxes?

If you work remotely or have employees who do, this guide can help you stay compliant no matter where you call HQ. Consequently, your employer is responsible for reporting your income and withholding unemployment or social security tax to the state where you live. This rule only applies if you live in a state that levies a state income tax on its residents. 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. Local tax withholdings mostly follow state tax guidelines, but there are some adjustments. In this scenario, your payroll and HR manager must examine each city and state’s nexus policy to determine if the organization is eligible for nexus within the state or city.

With the regular method, you’ll need to keep records of your eligible home office-related expenses such as homeowners insurance, mortgage interest, utilities and repairs. You’ll be able to deduct a percentage of eligible expenses based on the size of your workspace. If your home office is 10% how do taxes work for remote jobs of your home’s total square footage, then you can deduct 10% of the eligible expenses. There isn’t a hard limit on how much you can deduct for home office expenses. However, your home office deductions cannot exceed your business’ net income (the gross income it earns minus regular expenses).

The evolution and expansion of remote working provides tax professionals with an opportunity to put these skills to work and drive value for their businesses and clients. The federal overtime requirement is to pay employees 1.5 times their normal hourly pay for work over 40 hours in a workweek. A state’s workforce agency is the place to check on overtime requirements. If you haven’t already done so, you’ll need to find out where remote employees are working from. Some teleworkers may have moved recently, and you must document their work locations for state tax purposes.