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!
We currently live and work in IL. All taxes are filed jointly. I am contemplating taking a position in NYC that will require me to work in NYC and fly back over the weekends. To avoid the NYC tax (not NYS), I am considering renting in NJ. Will I need to file any nonresident tax returns in NJ even though I have no NJ source income? Will the answer change if I purchase a condo in NJ?
Hi Amol,
You are liable for taxes where you physically earn an income and where you are a resident. Each state has slightly different rules in regards to residency, however, you are typically considered a resident if you don’t intend to be there temporarily. You’ll want to check with each state’s department of revenue as some states consider you a resident after spending more than a certain number of days in the state; regardless of your ‘permanent‘ home. Even if you purchase a condo, the tax you pay will still be based on your residency. That is the first step- determining whether or not you will be considered a resident or nonresident of NJ if you are living there while working in NY.
I live in Texas and worked for my employer in Colorado as an independent contractor. I did not file any state tax returns in Colorado as my understanding was I paid state tax in the state I resided and worked from. I received a notice from the State of Colorado stating for 2012 they so nicely decided to file a Colorado income tax return for me based on my 1099 which they received from my employer I imagine and that I now owe them money. Do I owe them this money?
Hi April,
Generally speaking, you are liable for tax in your state of residence and your state of employment. I do believe that your specific situation may require additional attention other that what you have stated above. It sounds as though you received an income document. These forms cannot be ignored since the IRS also receives a copy and do not know your specific situation. I strongly suggest speaking with your tax advisor. If you do not currently have one, feel free to contact our tax support team so that we can help with a bit more knowledge about your case.
I have an LLC based in Ohio. I am currently doing work for a New Jersey based company that requires me to have all my employees as W-2 employees. One employee lives in Texas and commutes to NJ each week. I understand that I must withhold both NJ and Ohio taxes for my employee, even though he never works in Ohio. Will he be able to claim a full refund on taxes withheld in Ohio?
Hi Brandon,
That is correct. Although you are withholding Ohio taxes, he will be able to claim a refund as long as he files a non-resident Ohio state tax return along with his federal.
I worked and lived in Indiana for 3 months. Then I moved to MO to work for a new company for 5 months. After that, I move back to IN permanently and work remotely from home for the same company. The company only withholds tax for MO. For the tax year, I plan to file part- year returns for both IN And MO. Is this a correct approach.
For next year, I will be working from home (IN) for the company in MO. The company continues to withhold MO tax. I will file MO non-resident to get all the withholding back and file IN resident return on all my income. I will pay estimate tax during the year to IN to avoid penalty. Is this correct? Any chance that MO will try to grab the money since my W2 showsMO income?
Hi.
I was living and working on NY. NYS taxes were being taken out, etc. Now i moved to Florida in July and started working remotely from home as an independent contractor for the same company, but at the end of the year will receive a 1099 for taxes. I don’t know who to file with? I appreciate your help.
Hi Christina,
In tax situations like your own, typically the way it works is you will file a part-year resident return with NY. On this return, you will report the income you earned there along with the amount withheld. For the time you spent worked and lived in Florida, you are not responsible for NY state income tax. You will report your 1099 information on your federal tax return filed to the IRS.
Thank you!