The tax implications of working remotely from another state

Beyond this, hefty fines and severe penalties are also a very real possibility. “If you do move from a lower income tax state to a higher income tax state, I would make sure you’re withholding the right amount of money,” Taylor says. Before you panic about your tax bill, remember that every tax situation is different (and most people won’t get taxed twice).

  • If you reside in one state and work in another state, and your employer’s worksite is in a third state, you may have to file as many as three tax returns.
  • U.S. companies with remote workers in foreign countries, for example, must withhold taxes on their employees’ behalf based on their countries of residence.
  • If you have employees who recently moved to a new state and worked remotely, they’ll need to establish a new domicile, or permanent residence, to avoid being taxed in their current and former states.
  • Some states don’t require any personal income tax, meaning you don’t need to pay there.

Hire and pay your global team with Remote and get access to our team of global taxation experts. Generally, paid time off for a court appearance can range from a few days to weeks at a time. Employers will usually request documentation of the subpoena before approving your leave and corresponding pay. Traveling to another country and working for an extended amount of time seems like a simple process, but it requires some planning and almost always a visa.

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Your home workspace’s eligibility for a tax deduction depends on your employment status and how you use the space. But the freedom that comes with remote work can also cause confusion when it comes to your taxes. Depending on where you’re logging in to work, you may have to navigate tax codes from different states or cities. And while working from home can save your employer from office expenses, the same can’t always be said for you and your tax bill. In many states, having an employee or any official presence in that location triggers sales tax nexus for your organization. This is further complicated by local tax jurisdictions, such as counties and cities.

If you have remote employees in states other than where your organization is located, understanding the tax rules can be challenging. Without an EOR, most U.S. companies choose to treat international employees as independent contractors. This can cause a host of problems for workers and businesses if they are not careful. People who work as contractors must generally be free from restrictions about when they work, how they receive payments, the rates they charge, and whether they can work for multiple companies.

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For example, standard employees in the U.S. receive a W-2, indicating their tax status. The W-2 determines the state tax withholding how do taxes work for remote jobs for remote employees (and everyone else). In the Netherlands employees registered as tax payers have a threshold of 183 days.

With remote workers based in the U.S., employers’ federal tax obligations are slightly more straightforward. Chances are, you won’t actually be double-taxed—aka taxed for the same income in two different states, paying twice as much in taxes as you normally would. That said, you do want to be aware of which tax laws apply to you and your unique remote work situation. As a contractor living and working from some country abroad for a long time, you will pay local taxes.

How are employees taxed when working remotely?

Those who spend most of their residency in their home country will usually pay taxes. However, you might qualify for some tax exemptions if you spend more of your time out of the country. First, an employee should consider whether they are a permanent or temporary remote worker. A permanent remote worker is a worker whose worksite is outside the geographic location of the business.

Employers generally do not withhold any taxes from contractors or make payments to government entities on their behalf. Tax rates for contractors vary from country to country, so contractors should consult local guidelines for specific tax rates and savings tips. The issue of paying for remote workers’ expenses, whether because of legal obligations or as a way to attract and keep talent in a tight labor market, isn’t going away as the pandemic recedes. To ensure that an employee’s income isn’t taxed twice while working abroad, countries have Double Tax Agreements (DTA). In the lower tax rate country the employee is expected to pay 100% of the amount they would normally owe.

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“Don’t have a fear of taking the deductions and the tax credits and benefits that are available to you just because of an audit,” she says. 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. 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.

An independent worker must be registered as a sole trader or single-person company in some country to bill their employer or client. Furthermore, US citizens working remotely abroad must file IRS Form 2555 with their Form 1040 to claim the foreign earned income exclusion. The exclusion allows qualified Americans to exclude their earned income up to a limit of $112,000 in 2022 from US income tax.

Thankfully, regulations of many countries are quite similar regarding tax residency. Pilot’s payroll and HR platform enables you to hire and pay contractors and employees worldwide. You can clear up a lot of the potential confusion by discussing things with your employer’s human resources department (or someone knowledgeable on tax laws). You don’t have to know everything about taxes; you only need to know your unique situation.

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