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!
I live in Alabama and I work remotely from home. The office is in GA. Occasionally I will have to visit the GA office for a meeting. Do I have to pay GA taxes?
Hi Theresa,
Each state has slightly different rules when it comes to taxing non-residents but I went ahead and took a look at the GA government website. It states:
If you are a legal resident of another state, you are not required to file a Georgia income tax return if your only activity for financial gain or profit in Georgia consists of performing services in Georgia for an employer as an employee when the compensation for services performed does not exceed the lesser of 5% of the income received in all places during the taxable year or $5,000.00.
Thank you!
Hi,
I live in Texas and have a home. I got a job with a consulting company that had a project in Arkansas. They started deducting AR taxes even though i travel 4 days (Mon-thursday) and work Friday from Texas remotely. Agree i have to file a non-resident tax with AR. Will i get a refund since i don’t have a physical presence in AR.
Thanks
Hi Sriram,
If you do not have a physical presence in Arkansas while working, then you are not responsible for state taxes. However, if your employer is withholding taxes from Arkansas, you will file a non-resident return in order to claim that amount withheld back as a refund. You can also speak with your employer as to why he is withholding Arkansas taxes on your paychecks. This could be a mistake that could be easily fixed. You mentioned that you travel 4 days out of the week. Depending on where you are travelling to could alter your withholding.
Hi,
I am currently living in Rhode Island and working in Rhode Island, however my spouse is living in MA. Now I am planning to move to MA and commute daily from MA to RI. Can you please let me know what would be the tax implication. Will I be double taxed on my W2. Do I need to pay RI state tax on my income and MA state tax on my income.
Hi Shashank,
If you move mid-tax year, you will need to file two part-year state resident tax returns; one for Rhode Island and one for Massachusetts. In future tax years, you will file a resident state tax return for Massachusetts and a non-resident state tax return for Rhode Island. Each state differs slightly when it comes to taxing non-residents so double check each state’s residency guidelines. Also, you will not be double taxed. You will receive a credit fro your resident state for the non-resident tax paid.
I am resident in TN and work in KY,I am a 1099 (independent contractor).Do I need to pay KY state tax?
Thank You.
Hi Deep,
You are responsible for taxes in the state where you live and physically work. In your case, TN is income tax-free so you will not need to pay taxes to your resident state. You will need to file a non-resident KY state tax return.
I live in new york, but was working for my home office as an independent contractor for a company in california. All my work were performed on the computer and over the phone in NYC. There was no withholding on 1099. Would I need to file CA state tax?
Hi John,
As a general rule, if you work from home, you are required to pay state taxes in the state where you reside and work, not the state where your company is headquartered. There are a few exceptions to this rule, however, CA is not one of them,