As the name suggests, these states require employees to pay taxes as per the employer’s state, not their state of residence, where they work from home. States with convenience of the employer rules include Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania. Because the federal government levies these taxes, where you live doesn’t matter. Typically, you’ll pay taxes in the state you live in (unless that state doesn’t have income taxes).
The plan might backfire only if the employer revokes the remote-work privilege. Hybrid workers can lower their own living costs, and with less risk, https://remotemode.net/ simply by moving farther away from the office. Bergstrom was working as a personal assistant in a New York office when the coronavirus pandemic hit.
Commonly Overlooked Tax Deductions and Credits
You’ll be able to deduct a percentage of eligible expenses based on the size of your workspace. If your home office is 10% of your home’s total square footage, then you can deduct 10% of the eligible expenses. There isn’t a hard limit on how much you can deduct for home office expenses. However, how do taxes work for remote jobs your home office deductions cannot exceed your business’ net income (the gross income it earns minus regular expenses). Business owners and freelancers (including contractors) receiving a 1099 form for the income they earn may be able to deduct expenses related to having a home office.
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 this guide, we’ll explain how taxes work if you work remotely and show you how to increase your tax refund. Some states offer reciprocity, which allows taxpayers to only pay in the state where they’re living and working.
How are you taxed if you work remotely?
No, remote workers aren’t normally taxed twice for the state they live in and for the state their employer is based in. You should research exactly what taxes apply to you for working remotely in the individual state you’re working in. You should also check with your employer about any additional taxes if they’re located in another state. Like the temporary remote workers mentioned before, digital nomads often have to file non-resident tax returns depending on their stay in a given state. If their trips are shorter, they only need to pay state tax to the state where they reside—their home state.
Our employee stipend administration platform makes it easy to set up and manage the personalized benefits your employees want. This includes monthly allowances for things like health, wellness, professional development, and more. A sixth state, Connecticut3, only applies the rule if the taxpayer’s resident state has a similar rule for work performed for a Connecticut employer. For example, suppose your organization is based in New York, but you have an employee working from home in Utah. Meet with a TurboTax Live Full Service tax expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.
Remote work and taxes: It’s complicated
While Telebright involved New Jersey law, the issue raised is not unique to New Jersey. 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. However, during the pandemic, most states are temporarily waiving nexus taxes.
- Bergstrom was working as a personal assistant in a New York office when the coronavirus pandemic hit.
- If your company is located in one of those states, you generally will pay taxes there (whether you ever physically set foot in it or not) unless your remote location is required by your employer.
- When you’re crystal clear on what you need to pay, you reduce your risk of overpaying or incurring tax penalties.
- During the pandemic, application of the convenience-of-the-employer rule has been inconsistent.
- The employer maintained its principal place of business in Maryland but employed one telecommuting employee in New Jersey.
- A similar bill called the Mobile Workforce State Income Tax Simplification Act of 2021 is pending in the U.S.