New Report Shows Which States Impose The Biggest Tax Burden On Remote Workers

No matter your career, coronavirus has changed all of our working routines in one way or another. Whether it means wearing a mask to work every day or staying home and working from your kitchen table, work life definitely feels and looks different over the past few years. Catch up on CNBC Select’s in-depth coverage of personal finance, tech and tools, wellness and https://remotemode.net/blog/how-remote-work-taxes-are-paid/ more, and follow us on Facebook, Instagram and Twitter to stay up to date. The important thing is to keep itemized receipts or detailed records of everything. “You want to make sure that if ever you get audited… you have a reasonable defense for yourself,” she says. Tax preparation software can give you an affordable way to streamline your taxes.

One thing led to another, and I ended up creating content for SpendMeNot. I have been involved with this site ever since its launch — first as a writer and now as a manager. Double taxation occurs when you are taxed in two different states on the same income. Some states tax income of residents and non-residents, while others only tax income of residents. In this blog post, we will cover all of this and more, answering the most common questions regarding remote work and taxes. All features, services, support, prices, offers, terms and conditions are subject to change without notice.

Remote work tax considerations: How and where to pay

Suppose your temporarily remote employee typically works in the same state or location as your organization but currently works remotely in another state. 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. Generally speaking, a remote employee will create nexus for the employer for tax purposes and — as Telebright illustrates — such connection will likely withstand constitutional scrutiny. As businesses enter the clichéd “new normal,” it may appear everything has changed.

Rather than trying to figure out what you owe, we’ll do all your federal and state calculations for you at once. However, with all the (exciting) advances in technology, more and more individuals are trading in their commutes to the office to instead work remotely from home. In our post “Living in One State, Working in Another“, we explained how to file state taxes if you work in one state but live in another. While it is the employer’s responsibility to apply tax law correctly, any missteps it makes will ultimately impact you financially. So be sure to verify, validate and follow up on any action taken to ensure the proper result. Overall, it’s important to note that all taxes will vary depending on the individual circumstances of the person filing.

How do taxes work across states with remote work?

The nine states with no income tax are tied for first and get nearly perfect scores since they do not tax the income of in-state or remote workers. Among the states that tax income, West Virginia leads the pack at 10 (score of 28.95) while Delaware is last at 50 (score of -3.1). Here’s another example- If you’re working remotely from your New York home for a company in California and receive a W-2 form with two states listed, both NY & CA, then you’ll also need to file a CA non-resident tax return. On this non-resident return, you’ll report only the information  listed on that W-2 form.

• The company that you freelance for should have you fill out a 1099-form if you’re based in the US.
• While it is the employer’s responsibility to apply tax law correctly, any missteps it makes will ultimately impact you financially.
• “You want to make sure that if ever you get audited… you have a reasonable defense for yourself,” she says.
• Employers pay payroll tax on an employee’s behalf as per federal law.
• He said that although he wasn’t forcing his own staffers back to the office, he thought remote workers may struggle to get promotions.

Some states offer reciprocity, which allows taxpayers to only pay in the state where they’re living and working. Employers would only withhold taxes where the employee resides, and the employee files that state’s tax return. State tax rankings abound, but NTUF’s https://remotemode.net/ new report is the first to rank states based on how they tax remote workers. As the author Andrew Wilford rightly points out, ranking states by how they tax remote workers is more relevant than ever given the increased geographical flexibility of workers.

Tax Court rejects bad debt deductions

Having a remote and distributed team can lead to the complicated issue of remote work taxes. You could be responsible for additional employer withholding and sales tax responsibilities if you have workers in another state who don’t work in a company office. However, this differs based on the states where your employees live and where your organization is located. The tax issues related to remote work have an effect on passthrough entities (e.g., partnerships and S corporations), not just C corporations. In addition, most owners of passthrough entities are taxed on their distributive share of income in their resident state and the state-sourced income in the nonresident states in which the passthrough entity conducts business. To avoid double taxation, most states allow their residents to claim a credit for taxes paid to nonresident states on the same income.

Look for professionals who belong to prestigious professional organizations or come highly recommended by sources you trust. 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. Typically, the rule is that employees pay taxes based on the state where they reside.