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!
Hello! My husband owns a business based in Florida and we just moved to South Carolina. He works remotely and is a w2 employee.. does he have to pay both taxes ? How does it work?
If you are now considered South Carolina residents, you will need to pay residential taxes on all income that you earn throughout the year, regardless of which state it is earned from. You can choose to have the taxes withheld throughout the year for payroll or pay off the liability when it comes time to file with South Carolina.
Hello. My husband and I just bought a house in California and are planning to move at the end of 2017. We live in New York City now. We are both planning to stay with our current companies and work remotely. My company would like to keep me attached to the New York office since as I understand it, there are tax implications for having an employee live in CA. I imagine my husband’s company situation will be similar. I understand that we will have to fill a non-resident for NY and a resident for CA. Will we also get a credit for all of our NYC taxes that we pay? Are there any penalties for not paying CA taxes all year and then paying when we file?
You will have to file Non-Resident NY and Resident CA returns. You should receive a Resident Credit from CA for taxes you paid to New York to avoid double taxation. However, it is not guarenteed the credit will cover all of the taxes paid to NY. There should not be a penalty for not paying CA taxes all year. Please refer to the CA FTB for further information about estimated tax payments (https://www.ftb.ca.gov/individuals/faq/ivr/208.shtml)
I will be working for a Connecticut based company from home in Tennessee (must work from home). Do I pay taxes in both states? Or file both but only pay my home state?
Any income that is earned in a nonresident state is subjected to the state taxes there. However, this is also dependent on how your employer chooses to report your income information, and which state they report to. You will be able to determine whether or not you will have to file two state tax forms when you receive your income statement. This will appear on boxes 15-20 on your W-2, specifically what is shown in box 15, if it shows Connecticut or not. If it does and a state tax is withheld, then it will be necessary for you to file with that state.
My husband and I own a house in NY. Our kids and I reside in the house and I earn wages in NY. My husband resides in a rental and earns wages in Illinois. Does he have to pay NYS taxes on his wages because his name is listed on the mortgage with mine? He did get credit in NY for what he paid to Illinois, but We owed NY lots of money, was told not a high enough percentage was kept from my smaller paycheck to cover our combined income. Can we file a joint federal return and separate state returns? We owed NYS lots of money due to his high income, although he is technically not a NY resident. I’m nervous our taxes may not have been prepared correctly last year…advice please!
Hello Amy,
You can choose to file separately for state returns. According to your clarifications, your Spouse got a credit to NY (Resident state )for taxes paid to Illinois. Are you saying your Spouse is neither a Part Year Resident or Resident of NY?
Thank you.My husband resides in Illinois yes, tax prep even had a copy of his ILL license. We were told because his name is on our house as owner (mortgage interest statement) that we have to pay NYS tax on his income. And they gave us credit for what he paid to ILL as a non-resident. Our bank will not remove his name from mortgage, as he is the higher income holder. Should we file joint federal return but married filing separate ( him resident of ILL/earned income ILL and me NYS resident/earned income) for each state?
My husband and I currently live in West Virginia. My husband commutes into DC and works from home part of the time. We pay West Virginia state taxes. I am considering taking a job in Tennessee. If we make our home in Tennesse and my husband commutes into DC will he have to pay DC taxes since Tennessee only taxes interest and dividends.
Because you are moving to a residential state that does not tax the income earned within that state, any other states that you may be working as a nonresident will still be able to tax your income that you earn there. You will only be taxed on the income earned within that state and will not need to pay the same taxes that you have been in West Virginia when you move to Tennesse.