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,
I have been living and working in MA but will be moving to TX in January. I will still be working for the company in MA but remotely from TX. Do i need to have any state taxes withheld in MA or no since I will not be coming to physically work in MA?
Thanks
Hi Claudia,
Based on your comment above, you will not be responsible for state taxes in MA once you are a resident of Texas for tax purposes. I suggest double checking the resident rules with the Texas Revenue department website since each state tends to differ slightly. You will be responsible for taxes in MA for any time you physically worked in the state throughout the tax year. Be sure to update your address ASAP with your payroll department. If your company continues to withhold taxes for MA from your paychecks, then you will simply file a nonresident tax return for MA along with your federal tax return to the IRS.
Hello – Thanks for this great article. I live in Texas, have family and home in Texas. I travel every week to Washington DC, stay in an apartment for 2 to 3 days and work in DC.
The company that pays me has a registered office only in Maryland, hence they generate pay and with hold Maryland income tax. I neither live, nor work in Maryland. Since the company is a consulting company, it just provided me a contract to work for a client in Washington DC. I do not report to the company or anyone in Maryland.
Given this circumstance, how I can recover the state tax paid to Maryland where I am not working or living? When I talked to the company, they said they need a valid exemption for them not to with hold Maryland income tax. Maryland provides a form MW507 for claiming exemption, but this is only if I am domiciled in DC. I am not a permanent resident of DC either. Anyway exemption form MW507 only applies if I work or live in Maryland, both of which does not apply to me.
How can I provide a valid exemption to my employer and state of Maryland in this situation and also recover the state tax already paid? Please advise. Thank you.
Hi Sam,
Each state has different rules for who is considered a resident for tax purposes. According to Maryland, you are a full-year state resident if:
“Your permanent home is or was in Maryland (the law refers to this as your domicile). OR your permanent home is outside of Maryland, but you maintained a place of abode (that is, a place to live) in Maryland for more than six months of the tax year. If this applies to you and you were physically present in the state for 183 days or more, you must file a full-year resident return.”
Based on that and what you have stated above, you are not a Maryland state resident. In order to claim back the income that the company was withholding for Maryland taxes, you will file a non-resident state tax return to Maryland. They should credit you for that tax paid throughout the year as an issued refund.
I am an attorney and I currently own an online law practice (100% of revenue is earned online) in California. I am moving my family to Washington State. I will continue my online practice selling services to California residents, but I will be performing all work / services from my office in Washington State. I will not be returning to CA at anytime for work or any work related purposes.
I will also be starting a new WA based online practice as well.
Since I am performing all work outside of the state of CA, even though my website sold legal services to CA residents, do I have to pay CA state income taxes on the income earned from the CA online practice?
Hi David,
Generally, as an employee working remotely for a business headquartered in a different state, they would not be liable for the non-resident state income tax. However, rules can stray from that generalization when you own a business. I suggest contacting your tax advisor as more information will be needed to give you the most accurate answer. If you currently do not have a specific tax advisor, you can contact our team which specializes in business tax. You’ll be directed to a CPA who will be able to help based on your specific situation.
Hello,
My permanent address is in NY. My employer is in MA. I work 3 days in MA and 2 days remotely from home(NY). My employer ask me to fill up the W-4 form. So what address should I put on W-4.
Thank you,
Rassel
Hi Rassel,
The address you provide on your W-4 is typically your permanent address. In your case, this is NY. You want to use the address that you will use on your tax return and where you wish to receive your W-2 form at the close of the tax year.
So if I work for a month in a state where I don’t reside and earn less in that month than the standard tax deduction in that state will have have to file a tax return?
Hi Parrish,
Each state tends to vary with their rules. As you have not mentioned which state you are talking about in your comment above, I suggest contacting that state’s Department of Revenue or your tax preparer.