How Out-Of-State Remote Work Affects Your Taxes

As 1099 contractors aren’t employees, they must pay their taxes as an independent business to their state of residence . If employees work remotely in your same state, these rules also apply, usually with only a few changes to local taxes. According to McKinsey’s American Opportunity Survey, 58% of employees work from home at least once a week, while 35% work remotely full-time. As of 2023, these numbers may decrease as many employers issue return to office plans.

Can I work remotely in the US for a UK company?

This question lies squarely at the intersection of immigration & tax law, and the short answer is no. There is no law that allows working remotely in the U.S. for a foreign employer. Chapter 3 of IRS Publication 519, US Tax Guide for Aliens spells out why such remote work is not permitted.

Each state has its own rules regarding how long an employee can work in that state as a nonresident or part-year resident without owing income tax. In some cases, though, an employee may need to file non-resident tax returns. Suppose your temporarily remote employee typically works in the same state or location as your organization but is currently working remotely in another state.

Working Abroad: A Guide to Remote Work Taxes

However, some states use “convenience of employer” rules that require you to pay taxes in your state, not the employee’s state. Additionally, double taxation risks, such as those for employees who commute across state lines, can still exist in some states. For example, if your employee works for your Utah-based organization but they live and work from home in Oregon, you must withhold all state and local income taxes for Oregon from their pay and benefits. You will also have to pay any required unemployment taxes and special taxes for that location. Typically, you’ll pay taxes in the state you live in (unless that state doesn’t have income taxes). But if you work in a different state, then you’ll usually need to file a nonresident tax form in the state where you worked, listing the income and taxes you paid and earned in that state.

Technological advancements have produced a viable alternative to in-person, in-office presence. Video conferencing and other sharing platforms taxing remote workers make it easier than ever to work remotely. But if not planned and monitored carefully, tax ramifications of remote work can be severe.

Commonly Overlooked Tax Deductions and Credits

If you are unsure whether you are a temporary or permanent remote worker, ask your employer. And filing taxes in multiple states is just one of many complications that make figuring out your state and local tax obligations so difficult. The taxes you pay and the rules for withholding taxes change depending on not just what state you live in, but what county and city. “I have a lot of colleagues who won’t do Ohio taxes because there’s so many weird little rules in all the different municipalities,” Cagan says.

  • That caused lots of challenges for employers and employees and led to a lot of the old controversy.
  • If you changed residency partway through the year (you immigrated/emigrated), you may be considered both a resident and a non-resident in a country and may need additional forms.
  • For instance, employees that are temporarily working from home as a result of the COVID-19 pandemic are not officially considered remote workers if the expectation is that they will return to the worksite at some point in time.
  • The simplified method allows for less record keeping, however the original home office deduction can give you a bigger deduction.
  • Keeping with the above example, you’d want to take a look at Idaho’s tax laws to see whether you’d be subject to non-resident income taxes for the time you worked in their state.
  • We may receive compensation from the products and services mentioned in this story, but the opinions are the author’s own.

Many companies are permanently rethinking their approach to working outside the office as employees express interest in the perks of working from home. Your teams are likely to have questions about going back into the office post-pandemic. It may be time to stop thinking about remote work as a special category. You need the right policies and infrastructure in place today to support them to take advantage of the benefits they present. For example, European countries have signed treaties designed to prevent double taxation.

Principles of Sound Tax Policy

If someone’s moved to Florida, it means we don’t have to pay any tax. If someone’s moved to Colorado, it means we don’t have to pay double tax. That’s a New York specific rule, but certainly that’s one way to manage that. Employers will want their employees to come in sometimes just to see people. All these mandates are getting thrown out, not based on testimony by doctors. They’re being thrown out because the administrative agencies in the federal government or the states just didn’t have the power to do it.

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