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!
My husband and I own an LLC that is based in Nevada. It is a side company and not our primary income. We sell a service online and do not visit clients. Our vendor relationship has us using a PO Box in Ohio so that we can work with our preferred territory rep for their company but we sell online to anyone in the US and never go to Ohio. We also don’t live in Nevada. My husband’s primary employer has just moved us to CA.
How do we handle the tax situation? We are provided a 1099 from our vendor to our LLC. Do we file in CA, NV or Ohio? Do we need to move our LLC to CA or can we leave it in NV? The Ohio PO Box is strictly for determining whose territory we fall under with our vendor but not where we conduct business so to speak.
Hi Heather,
I appreciate your comment on our blog but I do believe you would benefit more from contacting a private accountant. Taxes paid for your LLC are a bit more complicated than individual taxes. State taxes for your LLC are even more complicated seeing as each state has different rules to follow. I suggest speaking with your state revenue department as well as an accountant for your business. If you currently do not have one specifically, we offer business tax preparation as well as our individual tax prep service. You’ll be able to speak with one of our CPAs before committing to the service so it may be your best bet.
First off, thank you for answering all of the commentor questions. The answers have been very useful. However I have a situation that seems to be a bit different from all the other previous comments :
I lived as a full time resident in France from 2011 to 2014. From 2012 to 2014 I had several sources of income. One was from an Oregon company paying me 1099. Every year I filed my federal taxes with the irs, including my Oregon income and my income earned in France. But I didn’t file an Oregon state return (it didn’t even cross my mind because I didn’t live in Oregon). In 2015 the Oregon company offered me a salary position (W2), with the stipulation that I had to move to Oregon. I accepted and moved to Oregon. So in 2015 I included an Oregon State filing in my tax filings. Today (Dec 2016), I received a “Notice and Demand to File” letter from the state of Oregon saying that I had 30 days to file an Oregon return for the period ending December 31, 2013. Otherwise, the letter says I will face penalties.
Can you give me any feedback on this? They are asking me to file a return for a tax year that I didn’t live in the state. It’s also interesting that they haven’t sent me a similar letter for 2012 or 2014.
My address on my 2013 federal return was in France.
Thank you in advance.
Hi Thomas,
Thanks for the question! I apologize for the delay in response as I wanted to do a bit more research about your specific situation since you lived outside of the U.S.
The first issue to tackle is determining from the Oregon State Revenue Department how you were taxed once you lived in France compared to when you lived in OR. If you resided in OR prior to your move in 2011 then moved back to OR after France, then the state department may consider you to be a resident still IF you owned property in OR.
For additional guidance, you can fax or email our tax support team the notice you received in the mail. We will be able to decipher the instructions and let you know how to proceed.
Hello.
I live in Louisiana (state tax) and work remotely for a company in Florida (no state tax).
I was told that I wouldn’t need to pay state taxes on the money earned from the company in Florida, however, the Florida company thinks they need to report my income to Louisiana.
Which is correct?
Hi Meredith,
You are typically responsible for paying income tax on the state where you reside and the state where you physically work to earn an income. In your situation, you are residing and physically working in Louisiana. That being said, you would be liable for filing a resident state Louisiana tax return and paying tax on that income earned.
My boss has been paying us in personal checks for about 2 months now she says that she has been paying our taxes and insurance but she will not provide proof. What can I do
Hi Lisa,
Although it is legal for employers to pay employees by personal check, it is frowned upon. This is pretty much the equivalence of paying in cash. Companies will sometimes do this to avoid paying payroll fees and taxes. As long as the employer is paying taxes and fees to FICA and the IRS, this is completely legal for tax purposes. However, it does seem a bit strange that your employer will not provide you with some type of record. You are entitled to this. Also, your employer should be withholding taxes, Medicare, and other common fees from your paychecks. I suggest speaking with your employer again, possibly explaining that you need a record to keep within your personal files for when you file taxes. The next step would be to contact the IRS to see that your employer is paying taxes on your behalf. If not, then the IRS will let you know the next steps to take. If they are, you should still be receiving a record for yourself of your pay. These will most likely be requested of you in situations such as applying for a car or mortgage loan, tax purposes, etc.
Hi, if I am a W2 working for a Hawaiian company remotely from Canada, do I need to pay state tax and Federal Insurance Contributions? And do I get any tax credit at all?
Thanks.
Amy
Hi Amy,
If you fall under employee rules (as you are if you receive a W-2), then the company would most likely need to set up a business number with the Canadian Revenue Agency. This would take care of the payroll needs for you as you are a Canadian resident. I suggest speaking with your payroll department to see if this has been done and go from there. You may need to speak further with an accountant for more specifics on your tax situation.