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 moved from CT to TN and started working from home going forward in the home office. The employer changed the address but said it will continue withholding CT income tax even though TN does not have state income taxes for employees. Is this right? Should I get the refund at the end of the year after filing the return? I would prefer the payroll stop withholding CT taxes going forward. Can you please advise what is the right course. Thank you
If you are earning income as a non-resident with a state that has an income tax, the nonresident state has the right to tax any and all income earned there. As to specific regulations and tax laws, it may be best to consult with a local account or a CPA.
I am a US citizen. I work for a US company and currently reside in Ohio. I am following my wife to Costa Rica for her position, but am going to continue working remotely from Costa Rica for my company in Ohio. My address in the payroll system will still be an Ohio address. My employer said that they will still be required to withhold Ohio taxes from my paycheck, even though I may be able to get them back when i file my taxes. Is this accurate?
If your taxes are withheld within the state that they are earned in, the state will tax the income earned. All non-resident states that have an income tax have the right to tax any income that is earned within that state.
Hello,
My wife and I own an LLC (S-corp election) are the only 2 owners and only 2 employees.
The business is located in Idaho however we both work remotely. For 6 months of this year we lived and worked in Idaho and now moved to Washington state permanently.
We both (and the LLC) has deducted Idaho withholdings, however now that we moved to Washington to live and work remotely – we are at a loss as to how the LLC taxes us being the only two employees, if we are responsible for paying unemployment insurance (as we are operating partners) and if we need to at all register with WA state for anything.
All income is earned in WA and since there isn’t an income tax I assume there is no need to file a state return there for income earned and with the LLC there shouldn’t be a need to file for a business licence in WA state, pay unemployment insurance there or even B&O tax as the company is located in Idaho.
Thanks for any help and suggestions =-)
Hello Matt,
If the business has no revenues in WA, you do not need to file an excise tax return and pay the B&O, Sales tax, etc. If you only have revenues in and operating in Idaho, you pay Idaho taxes only.
Corporate Owner Officers who are on a payroll earning income and who provide services in Washington are automatically exempt from unemployment insurance unless they specifically request to cover them. Plus WA state has no income taxes so no need to file employment states tax forms. It looks like you do not need to register for anything but continue to pay the Federal employment taxes.
You may refer to this link for WA State: http://business.wa.gov/run.html
I am an employer in CA and we recently hired a resource who is working from home in NJ.
Now can someone help that how much taxes should we need to deduct? I mean is it only NJ taxes or CA taxes as well.
we have hired one online payroll company who have asked us to apply for CA withholding and unemployment account and both the accounts for NJ as well so that mean I have to deposit amount in both the states ?
It would be best for you to speak with a local accountant or a CPA of your jurisdiction on how you should proceed with filing taxes for your out of state resources. Typically withholding taxes in the state that the income is earned in and having your employee filing a resident and a non-resident return will suffice. Or you can choose to withhold taxes in their resident state to convenience them.
I am a current resident of Florida and work remotely from my home office. My company is headquartered in NC and I have been having NC state tax taken out of my payroll. Is this accurate?
If what I understand from this article and previous comments is correct, I should not have state tax deducted from my pay?
Thank you for the clarification!
In addition, I may have to relocate to NC within the next 8 months… in this instance, will I only pay state tax to NC starting at the time I claim residency?
Your confirmation is greatly appreciated.
As a non-resident of NC, your income is subjected to taxes in the state that your income was earned in. The state only has the right to tax the income that was earned in that specific state. However, your resident state has the right to tax any an all income that you have earned throughout the year, regardless of state boundaries. Your taxes are being withheld accordingly and are correct.