In telecommuting, the employee works from home or another remote location instead of going into the office. In this case, the employer may be required to withhold taxes in both the state where the employee lives and the state in which they work. Some remote workers decide to relocate to a state with a lower tax rate, like Alaska, in an attempt to save money — only to find that, at tax time, they are forced to pay a double tax rate.

With some insight into the rules and planning, you can make smart decisions to minimize your tax burden as a remote worker. Working remotely opens a whole new world of possibilities, from being able to travel while working to avoiding the daily commute. Where you live versus where your employer is based can have major implications on how much you pay in taxes and where you need to file and pay them.

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Here are a few things you can do to keep your tax obligations at a minimum while working remotely. Organizations near state borders often hire employees from other states who commute to work across state lines. This is common in cities such as Portland, Chicago, El Paso, Washington D.C., and New York City.

Tax implications of working remotely from another US state

1. Here’s how employers and employees can successfully manage generative AI and other AI-powered systems.
2. As companies and their workers tackle telecommuting’s evolving tax implications, Klein advocates an awareness of all relevant state rules on remote work.
3. US citizens who live abroad and work for a company based in the United States only have to pay taxes in their country of residence.

Employers will usually request documentation of the subpoena before approving your leave and corresponding pay. Hire and pay your global team with Remote and get access to our team of global taxation experts. Check out our countries page to discover all the places how does remote work get taxed we help businesses work with top global talent. Misclassification of employees in this way can lead to massive penalties for the offending companies, both within and outside the US. 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. However, there are certain conditions that must be met for this rule to apply.

What is the home office deduction and how does it work?

In addition, I encourage you to follow up with a certified tax professional who is familiar with your new state and local taxation regulations. Unless you live and work in a state with no income tax, you may get taxed twice on the same income. As an employer, it’s your responsibility to ensure that your remote workers are compliant and meet local tax law requirements. Consequently, remote workers employed by companies based in ‘convenience states’ might face double taxation. But when employees work remotely from another state, things can get complicated.

This affects the total amount of taxable wages and withholdings for your employees’ individual income tax. Since 1099 contractors aren’t employees, they must pay their taxes as an independent business to their state of residence (if working remotely). Suppose your temporarily remote employee typically works in the same state as your office location but currently works remotely in another state. For a state to consider someone a temporary worker, you must expect the temporary remote worker to return to their permanent location. Otherwise, state governments consider them permanent residents of the other state.

Reason: Necessity or convenience

The amount you can deduct is still limited to the amount of income from business activity. You can also deduct supplies that you buy like paper, printer ink, or supplies for your customers, and you can take the home office deduction. Spending time in multiple states can further complicate your taxes and may require you to track the amount of time you spend in each state.

However, some states don’t require organizations to report taxable employee benefits they offer to their remote workers, which is why you must check state tax laws for each remote worker you hire. This test requires that you withhold and pay taxes to the state where your organization is located, even if your employees live out of state. Unless you specifically require your out-of-state workers to be remote in their state, you may have to withhold taxes for your state. The pandemic has accelerated the move to remote work and with it the possibility that those employees can live anywhere they please.