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:
-
resident-state: the state where you live. Your resident state taxes ALL of your income, regardless of what state it’s earned in.
-
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 Michelle,
I just wanted to circle back on the above question to see if you could offer any guidance. Thank you!
Hi Anthony,
I do apologize for the confusion as it seems that your question was lost in translation somewhere. I’d love to help! Would you mind repeating your question here?
I am getting ready to start a new job next week. I am a resident of and will be physically working in MA. This is a start up franchise with an established business presence in CT, they have advised me that I would be considered an employee of the established business in CT. Any thoughts on how this would work?
Hi Carl,
Congratulations on the new position!
From a tax perspective, you will report all income and withholding from the year on your federal tax return. You will also file a resident return for MA, reporting all income earned and withholding. It sounds like your company plans to withhold income tax for CT based on your comment above. Typically, in this situation, the resident state will issue a credit back to the taxpayer for paying taxes to the nonresident state. In order for this to happen, you will need to file a nonresident state tax return for CT.
I live and am a resident of the State of Hawaii, the company I work for taxes me as a California resident even though I am not. They won’t change my residency and I keep getting charged California state income tax. What happens to those taxes since I don’t live in Califirnia?
Hi Marco,
You can receive a refund/credit back for the taxes you paid to California throughout the year. You will file a non-resident California state tax return. The state will see (based on the information you provide on the return) that you did not physically work or reside in California.
In 2016, my husband and I, both U.S. citizens, worked (from home) for Canadian corporations. However we spent 2/3 of the year in Illinois living in a rental home. We get paid in $CAD and assumed we would have to file as Quebec full-time residents, even though we’ve physically spent the majority of 2016 in the United States. Are we able to file as part-time residents in Canada, even though we worked year round for Canadian corporations?
Hi Jennifer,
When it comes to determining whether you are a US state resident for tax purposes, it is generally based on your intent to maintain a domicile in that state permanently or temporarily. A lot of the time, if you are only in the state temporarily, you will not be considered a resident. This can differ from state to state if you’ve been in the state for more than 183 days of the tax year. Here are the specific rules for Illinois. When it comes to Canadian taxes, I strongly suggest contacting the Canada Department of Revenue. They will be able to let you know the guidelines for what constitutes an individual as a full year or part year resident for income tax purposes.
Hi,
I am moving to Oregon and I work from home. My companies are in California. How does this work.
Do I have to file for Oregon and California state taxes? I only work from home
Thank you,
Jackie
Hi Jackie,
Typically, taxpayers are only responsible for paying tax to states where they reside and physically work and earn an income. In your case, it will depend on when you move to Oregon. If you qualify as a part year resident of both Oregon and California based on when you move, then you will file two part-year resident tax returns; one to each state. If you start the year off living in Oregon, then you will end up filing a resident tax return to Oregon and a nonresident tax return to California.