Tax Implications of Remote Work

Thirty-two states have graduated income taxes similar to the federal income tax. Ten states have a flat income tax, and nine states have no income tax at all. If you work at a larger company, for example, they can assign you to an office outside of convenience rule states so you can avoid being taxed by a state you aren’t in, Stanton said. The Tax Foundation’s Walczak said that by looking for short-term tax windfalls, convenience rule states might lose long-term tax gains by driving businesses elsewhere.

Employees may request to have an additional amount withheld by their employer. Gross taxable wages refers to the amount that meets the federal definition of wages contained in U.S. Generally, this is the amount included in box 1 of the employee’s federal Form W-2. Amounts considered to be wages for federal tax purposes are considered to be wages for Arizona income tax purposes. Amounts included in wages and subject to mandatory federal withholding are subject to mandatory Arizona withholding. Amounts excluded from wages and from mandatory federal withholding are excluded from mandatory Arizona withholding.

Consider including EOR to optimize employment

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. US companies how do taxes work for remote jobs that want to employ an international remote workforce cannot do so directly unless they register a legal entity in a different country or utilize the services of an Employer of Record organization. The tax situation is far more complex for out-of-state workers who commute to work across state lines or work in one state and live in another.

When you know what they are required to pay, you will better understand what you are required to pay. You can offer your employees a remote work stipend through WorkPerks by PeopleKeep. 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.

Tax Law Issues Related to Working Remotely in a Different State

These instances sometimes arise when people from New Jersey commute to New York City or Washingtonians commute to Portland, Oregon. Misclassification of employees in this way can lead to massive penalties for the offending companies, both within and outside the U.S. Both parties should sign a document that clearly outlines the nature of the relationship and regularly evaluate the relationship to ensure that nothing has changed.

• Regarding remote workers state income tax, working from home means paying state income tax to your home state.
• Consequently, remote workers employed by companies based in ‘convenience states’ might face double taxation.
• 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.
• The property factor looks to the value of a company’s real and tangible personal property owned or rented and used within a state.
• If it is expected that you will return to your employer’s worksite, you are probably a temporary remote worker.
• A recent Harris Poll showed that many people are “not very” familiar with the tax laws in their state of residency or the state where their employer is located.

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. 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. Unlike other remote workers, these commuter employees live in another state but work in the same state as your organization.