How to Handle 2021 Taxes as a Remote Worker

In this case, you and your employee could be subject to tax liabilities in both states. Reciprocal agreements—or a compromise between states that allows nonresident workers to request tax exemption from the other state—exist in some places to prevent double taxation, but only some states have one. In these situations, the employee’s resident state may issue a tax credit for any income paid to your organization’s state.

It simply must meet a minimum requirement of business sales within that state. These requirements range anywhere from $50,000 to $500,000, depending on state laws. State Unemployment Tax Assessment (SUTA) is usually based on the employee’s work localization. For example, an employee performs services in Louisiana for an entire year.

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Some states follow the “convenience of the employer” rule, which requires a worker to pay income taxes where their employer’s office is located because the employee works remotely for convenience’s sake rather than necessity. These states are Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania. This means that under certain circumstances, a person might be taxed both where they work and where their employer’s office is located, resulting in double taxation without any tax credit.

how do state taxes work for remote workers

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’ll also want to draft a company policy for remote work expense how do taxes work for remote jobs reimbursement in accordance with your local laws. Taxes make up just one part of the enormously complex equation of working and hiring internationally. Workers must tackle issues like visas, culture shock, and language barriers. Businesses, meanwhile, must contend with issues of payroll, benefits, and compliance.

How to Limit Your Tax Liability as a Remote Worker

This is common in cities such as Portland, Chicago, El Paso, Washington D.C., and New York City. While remote work has been a phenomenon for decades, the COVID-19 pandemic and technological advancements have made remote work an increasingly common practice for working Americans. We brought together the best of the best to deliver a suite of specialized solutions with unmatched service, trusted expertise and client-inspired innovation. We’re focused on the employee experience while improving your bottom line.

  • Other states’ thresholds kick in faster, including 23 that expect you to pay taxes from day one of working there.
  • For example, Arizona requires a tax return after 60 days of working in the state.
  • Some states have reciprocal agreements that enable remote workers to pay taxes in just one state and avoid double taxation.
  • Mobile workers are employees who travel around the country as part of their job.
  • There’s also bipartisan interest at the federal level to stop the practice, including proposed legislation called the Multi-State Worker Tax Fairness Act of 2020 that would tax remote workers by residence only.
  • However, when employees work remotely from another state, things can get complicated.
  • Many of these payment options, according to the CFPB, “will increase the amount of interest you pay over the life of the loan to varying degrees; some options may increase your payment amount or the number of payments you owe.”

Requesting a withdrawal means you would be asking the IRS not to process your entire amended return that included your ERC claim. 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. Organizations near state borders often hire employees from other states who commute to work across state lines.

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However, remote workers who travel to other states and work from there may have to file a nonresident state tax return. Remote workers do not have to file nonresident state tax returns unless they physically travel to another state and perform work while they are there. In certain cases, a reciprocity agreement may protect workers from taxes in different states.

  • This column discusses items tax professionals should consider when evaluating the state and local tax ramifications of a remote work environment.
  • “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.
  • To determine withholding amounts for remote employees, you’ll need to refer to each employee’s Form W-4.
  • If you’re unsure how your state or local tax codes affect you, then it’s a good idea to work with a local tax professional to avoid overpaying or underpaying your taxes.
  • It could also be a reason for more people to pull up stakes now that they’re less tethered to the office.
  • They do this by using W-4 withholding forms that employees fill out before their hire dates.

Meanwhile, nonresident taxpayers working in other convenience-of-the-employer jurisdictions should consider whether to file similar refund actions challenging the convenience-of-the-employer rules. However, they have a state unemployment insurance tax, meaning employers don’t have to withhold state income tax. Still, they must make state unemployment withholdings for Florida remote workers. A particularly complex one is a situation wherein an employee is temporarily working remotely from another state, both outside of their employer’s state and their state of residence. Because where the work occurs is one of the primary determinants of where a remote worker pays income tax, temporary remote conditions are often confusing.

A new Illinois law allows for electronic posting of workplace notifications to help employers with a remote or hybrid workforce. Meanwhile, some states — 16 of them, according to the institute — have reciprocal agreements with one another. Basically, if your resident state has this pact with the one where you work, you won’t have to pay in both jurisdictions.

This test requires that you withhold and pay taxes to the state where your organization is located, even if your employees live out of state, if they do so out of convenience. Unless you specifically require your out-of-state workers to be remote in their state, you have to withhold taxes for your state. The United States uses a progressive, seven-tier tax bracket system for personal income taxes. The rationale behind this model is as an employee’s income increases, the employee’s ability to pay more in taxes also increases. Employers are required to utilize these brackets to conduct income tax withholding from employee wages. For example, some states let nonresidents work within their borders for at least 30 days without a withholding requirement.

In addition, I encourage you to follow up with a certified tax professional who is familiar with your new state and local taxation regulations. What adjustments need to be made will depend chiefly on state and local tax laws governing your new residence. This deadline gives remote workers plenty of time to get their necessary paperwork gathered, consult the help of a professional, and prepare to file their return correctly. Another example is the likely impact on personal property and sales and use taxes as the purchase and ownership of tangible property shifts from its traditional location to the decentralized world of remote office and remote workers.

Reduce complexity and minimize disruption with Experian Employer Services. Read on to learn more about the key compliance metrics that employers need to monitor and how a comprehensive program can streamline the process. ​SHRM President and Chief Executive Officer Johnny C. Taylor, Jr., SHRM-SCP, is answering HR questions as part of a series for USA Today. Get this delivered to your inbox, and more info about our products and services.