Tax Implications of Remote Work

A McKinsey Global Institute analysis of 800 jobs found that the ability to work remotely is highly concentrated in a handful of high-skill occupations and industries, including finance, management, professional services, and information technology. At the end of the day, what employee benefits and rights remote workers have will depend on the facts of the case and the language how do taxes work for remote jobs of the state law in question. Some laws such as California’s paid sick leave specifically states that it applies to employees in California. No matter where one lives or works, there’s a wide range of federal laws for employers and employees. But some benefits are covered only by states, and others can be much more favorable for workers than comparable federal ones.

remote work taxes

These were temporary rules, but presumably there are going to be audits of workers for this period that come up. Chart a long-term remote work plan that most effectively helps your workers thrive. Every company’s strategy is custom-built based on their industry, global footprint, talent needs, and company culture.

Learn about local tax laws

Hire and pay your global team with Remote and get access to our team of global taxation experts. Misclassification of employees in this way can lead to massive penalties for the offending companies, both within and outside the U.S. Both parties should sign a document that clearly outlines the nature of the relationship and regularly evaluate the relationship to ensure that nothing has changed. 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.

  • Yes, an accountable plan is a plan set up by employers to reimburse employees for business-related expenses.
  • To avoid double taxation, most states allow their residents to claim a credit for taxes paid to nonresident states on the same income.
  • A number of states said, "You know what, if you're physically working in our state, well, that's a work day in our state. We don't care that you're working remotely for your employer who might be in New York or Connecticut or California."
  • The reality is that some protections apply only to those residing in California.
  • But not all remote workers “work from home.” To illustrate the different scenarios that remote work often refers to, let’s explore different types of remote work arrangements.

If you have a space in your home used solely for business, you can deduct your expenses with either the simplified option or the regular method. Which filing tactic saves you the most depends on your actual costs and the size of your home and office space. You may have moved your standing desk into the spare bedroom, but that doesn't guarantee it'll qualify for a home office space deduction. Your home workspace's eligibility for a tax deduction depends on your employment status and how you use the space. Even if you prefer using software and preparing your taxes yourself, CPA and Tax Strategist Chika Obih recommends hiring a tax professional for at least the first year you work in a state different from where you live.

Home-based Remote Workers

The Flex Index categorizes remote work policies based on corporate-level rules, meaning some employees included in the “fully flexible” category could be subject to team-level in-office requirements. Still, that likely means the office time is more tailored to individual employees’ work, something Lovich says is important when thinking about hybrid policies. It’s also worth adding that independent contractors must pay taxes by themselves because companies usually don’t withhold taxes for them. For instance, if you live in West Virginia, Pennsylvania, Washington DC, or Virginia and work in Maryland, you’ll only have to pay state taxes in your home state.

  • For your employer state, you’ll file a nonresident or part-year resident return (whichever best fits your situation according to the state’s rules).
  • Several states have implemented laws requiring employers to reimburse reasonable and necessary business expenses incurred by employees in the course of their employment, including with respect to remote work.
  • Some laws such as California’s paid sick leave specifically states that it applies to employees in California.
  • You will need to check with your employer to find out if they withhold taxes from your paycheck and how much they withhold.
  • Verify your employer is re-evaluating and making necessary adjustments to your tax withholding.
  • The vital thing to know is that remote workers can easily avoid double taxation if they live in one state and work in the other.

In fact, the majority of states take the position that a telecommuting employee creates sufficient nexus to subject an employer to the state's business taxes. Although the issues themselves are not new, the impact of those issues is now much greater since more individuals are working remotely than ever before. Thus, Telebright is an important reminder of the position taxing authorities can take, as this column next delves deeper into the issues raised by a growing remote workforce. Moreover, TeleBright was already withholding and paying New Jersey state income tax on the employee's salary — thus, the additional effort of calculating and paying the CBT should not constitute an undue burden. While I can't speak to the specific details of your circumstances, it seems likely your employer will need to adjust your tax withholding, especially if you have moved to a state different from the one you previously lived and worked in.

Payroll factor

Worker mobility is here to stay, survey shows, as tax and payroll experts navigate a complex matrix of new risks and requirements. Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Here are a few things you can do to keep your tax obligations at a minimum while working remotely. You’ll love our unique approach to filing taxes—it’s simple, transparent, and carefully designed to provide you with a stress-free filing experience from start to finish. If you must work from home to keep your job, your employer state can’t tax you.

remote work taxes

Most other self-prep platforms charge around that amount for each state return, so you could save $50+ just by filing with us. Thankfully, only a handful of states—Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania—use the Convenience of Employer rule to at least some degree. 15While Philadelphia maintains a "requirement of employment" standard, temporary relief was provided during the pandemic. Again, review your employer's policy to confirm your options and check with HR to answer any unresolved questions.

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