You work from home…but where do you pay taxes?
In our post “Living in One State, Working in Another“, we explained how to file state taxes if you work in one state but live in another.
However, with all the (exciting) advances in technology, more and more individuals are trading in their commutes to the office to instead work remotely from home.
If you work remotely and the company you work for is in a different state than you live in, then your tax situation will differ from someone who physically travels to another state for work.
We understand that you may have no idea how to file your state taxes. We’re here to help!
File taxes to one or two states?
Depending on your specific tax situation, you may need to file two state tax returns; a resident return and a non-resident return.
As a refresher:
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resident-state: the state where you live. Your resident state taxes ALL of your income, regardless of what state it’s earned in.
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non-resident-state: a state you did not live in over the past year. Different states have different non-resident tax laws on who is required to pay non-resident taxes.
Although certain states have varying non-resident tax laws, generally, if you live in one state and work in another remotely (so you don’t physically travel to another state for work), then you would only file and pay taxes to your resident state.
That means, if you’re working remotely you’ll only have to file a resident tax return to the state you live in.
However, if your W-2 form (that form you receive at the end of the year or beginning of January) lists a state other than your resident state, then you’ll need to also file a non-resident tax return to the state listed. In other words, you’ll file two state tax returns; a resident return to the state you live in and a non-resident return to the state listed on your W-2 (the state your company is located in).
Report ALL earnings on your Resident Tax Return!
The most important thing to keep in mind if you work remotely is that you’ll need to report your income earned (no matter what state it’s from) on a resident state tax return (unless of course, you live in a income tax-free state).
For example, let’s say you work remotely from your home in New York for a company located in California. When you receive your W-2, you see that there’s no reference to CA withholding. In this case, you would not have to file or owe CA state income tax. You’d report all of your income earned from your remote work (and any other earnings) on a New York resident state tax return.
Here’s another example- If you’re working remotely from your New York home for a company in California and receive a W-2 form with two states listed, both NY & CA, then you’ll also need to file a CA non-resident tax return. On this non-resident return, you’ll report only the information listed on that W-2 form.
If you end up being double-taxed, your resident state entoitles you to a credit for the taxes paid to the non-resident state. This should be a dollar-for-dollar reduction.
Who Doesn’t Need to File a State Return (income tax-free states)
You’re off the hook from filing a resident tax return if you live in one of the following income tax-free states;
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
So, if you work remotely from your home in Florida, you won’t need to file a resident tax return. In fact, you probably won’t need to file any state tax returns, unless your W-2 form indicates another state’s tax withholding.
Let us do the state calculations for you.
We know that state taxes are a lot to wrap your head around. Rather than trying to figure out what you owe, we’ll do all your federal and state calculations for you at once. You’ll simply enter the information listed on your W-2 form(s).
Calculating state taxes can be a headache- avoid all tax headaches with RapidTax!
Hi,
Could you comment on the “convienence vs necessity” clause specifically as it relates to NY taxes on telecommuters. As the poster above mentioned it appears that NY is taxing people who work from home from other states for NY employers if the job theoretically could be done in NY.
My wife and I moved to CA this year. She continues to work for her NY company from home. Her CA W-2 shows a part year income. Her NY w2 shows an entire years worth of income though her company had not been taking out NY income tax for half the year. It seems like we will owe NY state taxes and have to take a credit in CA. Am I missing something?
Hi Derek,
I suggest contacting someone directly via the New York Government website.
We moved to New Jersey at the beginning of the year and we are renting a home here and renting out our home we own in Ohio. My wife is working remotely in New Jersey for her company that is based in Ohio. Her employer recently asked which state they should be withholding taxes for and I’m also not sure which state tax returns we will have to complete? Thanks for your help, much appreciated.
Gary
Hi Gary,
Typically once you are a resident of a state, that state’s taxes will be withheld from your paycheck. If you work in a different state than you live, then that state can also withhold taxes. However, when working remotely, generally the state where you are a resident is the only state that can withhold taxes.
I live in MS and work remotely for a company in AL. I am still confused as to if I pay resident-state tax to MS and non-resident-state tax to AL or if this statement “Although certain states have varying non-resident tax laws, generally, if you live in one state and work in another remotely (so you don’t physically travel to another state for work), then you would only file and pay taxes to your resident state” applies to me. Thanks for your help.
Hi AG,
That was stated in the article because each state has their own set of guidelines when it comes to residency. For a full set of rules for MS, I suggest checking their government website.
Hello,
I have a bit of a twist on this situation in that I live in Maine and work remotely 4 days a week. I travel to Massachusetts (where my company is located) the other day. How should I break down the amount of tax owed to MA?
Also, I lived in MA until April of 2014 and so I am assuming all of my income up until the time I moved is taxable by MA and the remainder of the year is taxable by ME (my new resident state). Is this correct?
Thanks so much for any insight you can provide.
Hi Megan,
Before filing, you will receive a W2 form from your employer. On this form, you will see a breakdown of the amount withheld from each state.
Recently, my husband and I received a notice of $66,000 income taxes (including penalties and fines) due to the State of New York. In fact, we received an unsolicited PTR Administrative Offices indicating the there has been a tax lien filed against us in the same amount shown in the communication from the New York State Department of Taxation.
Neither my husband nor I have ever lived in the State of New York. In addition, with the exception of going through an airport in the 1970s, we have never even visited the State of New York.
For the years 2007-2014, my husband taught two online classes each year for a New York state college. The total amount he earned each year was less than $6000. I started teaching online for a private college in New York in 2010 and have had gross income each year of about $10,000.
Each of us has a home office where we perform our online class work. Since we perform the work in our home offices, we assumed the amounts were taxed in the state we performed the service — which happens to be the same place we live. So, we included the amounts in our state income taxes for the State of Georgia where we lived for the years 2007-2009. However, we moved back to Florida in mid 2009. Since Florida does not assess income taxes, we have not filed a state income tax return for the years 2010-2013.
In my research, it appears that some states–including New York—are taxing non residents for monies earned from sources in New York. Here is a link to an article I found: http://www.journalofaccountancy.com/Issues/2009/Jun/20091371
Have you had any experience with this type of issue? The colleges did not provide their online part time faculty with an office or any location to perform the work.
Hi Deborah,
What it should ultimately come down to is where taxes are being withheld from on each of your pay checks/statements. Before you file taxes each year, your employer(s) are required to provide you with a W-2 Form. On this form, the states that have been withholding taxes from your paychecks each pay period are listed in Box 15. The states listed are the ones that you are responsible for filing state tax returns for (along with your resident state). Keep in mind that you will not see any states here that do not have an income tax (ie: Florida).
Unless yours is a specific case or there is a piece of the puzzle missing, I do not see how the notice you and your husband have received could be accurate. I do suggest contacting the person listed on the notice to gain some more information.
NY considers any NY Source income to be taxable in that state. So, if you’re working remotely for a NY based employer, you should withhold NYS taxes because you will likely be assessed a tax.