Tax Tips for Remote Workers: Where do you pay taxes if you work remotely?

Before the COVID-19 shutdown, the ability and choice to work remotely from home was growing in popularity. The popularity of remote work continues to grow thanks to advances in telecommunication technologies, which allow individuals to work remotely outside a traditional office environment while still remaining personally and collaboratively productive. Now, as the entire workforce proved its ability to successfully work from home during the shutdown, I expect exponential growth in remote work offerings. Because of remote work culture, we will see an increase in the number of people working remotely for companies that are based in different states. Remote work outside of your company's state will affect your tax situation. Below, I will explain how and where you pay taxes if you work remotely.

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Where do I file my taxes?

In a previous post, I provided tax filing guidance for individuals who live in one state and work in another. In other words, these individuals commute across state lines and physically work in another state. If this situation applies to you, please follow the link (How to report taxes when you live in one state and work in another?). However, the tax filing implications relating to remote work differs, and luckily, it is much easier.

In terms of filing state taxes as an individual. you may be liable for a resident state income tax return and a non-resident state income tax return. As the name suggests, your resident state is the state in which you reside or live. You should report all your income to your resident state. It is important to note that this means you should report all income to the resident state regardless of where you earn the income. A non-resident state refers to a state in which you have not lived in during the 12-month tax year. U.S. states have varying non-resident tax laws; however, generally speaking, if you work remotely for a company in a different state but do not physically travel to that particular state to work, then you should only file and pay taxes to your resident state. In other words, remote workers generally do not have to file a non-resident tax return.

Check your Form W-2

As stated, the laws governing non-resident taxation varies state-by-state; therefore, it is important to research and understand the applicable state laws. The receipt of your W-2 Form from your employer should confirm or deny your understanding of your tax situation. For example, when you receive your Form W-2, check to see if the W-2 lists a state or states other than your resident state. If the W-2 references withholding from a non-resident state, you should file a non-resident state tax return. If your W-2 does not reference another state, you should only file a resident state tax return.

In conclusion,

I hope the following tax tips for remote workers helped increase your understanding about where to pay taxes if you work remotely. As the popularity of working remote grows, it becomes important for remote employees to understand the tax laws surrounding their remote employment tax situation. Please share with others to help them learn where they should pay state taxes if they work remotely in a state other than that of their employers. As always, please comment below if you have any questions relating to the tax tips for remote workers.

This post and all posts on Textbook Tax are informational only and are not intended as tax advice. For tax advice, please consult a tax professional.