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 am from Singapore. I work remote for US company.
So could you tell me how is tax calculated in this case.
Thanks.
It may be best to contact your company to request advisement on this matter, specifically your payroll department. You may also want to speak with a CPA on this matter as well because your situation pertains to international taxes and income.
If I am a US citizen, full-time teleworker, permanent residence in AZ, employee of a US company based in MN, and I chose to spend 6 months of the year working in Mexico, would anything regarding taxes have to change or would it remain as is with AZ state tax withheld (along with the federal taxes, etc.)?
Since you’re a US citizen and you earned income in Mexico, you’ll need to report all your income, whether it was earned in the US or abroad. You can do so by filing a foreign income tax return. You might qualify for foreign income exclusion.
Hello. I’m a resident of Florida, but I’m an independent contractor for a company in Georgia. What does this mean for me in terms of tax?
If you received a 1099-MISC from your employer in Georgia, you will need to file a non-resident state tax return with GA for the income that you earned in the respective state. All income earned within a non-residential state is subjected to taxes within that state.
An extra complicated situation:
I am going through the hiring process with an organization that is not its own legal entity — this international “network” and its staff are instead hosted by various non-profit orgs / NGOs based around the world. In the US, we are hosted by a large non-profit that is registered in many states — but not my current state of residency, New Mexico. HQ of the hosting organization is based in NYC, but they also have offices in Atlanta, GA, where I have family based / an address I could indicate as my own.
I never need to work on site at our host agency offices — I work entirely from my home in NM, and my boss & coworkers within the network itself also work remotely in similar arrangements, though they happen to live in states where the host agency is registered. Still, I am being encouraged to indicate to our host agency’s HR that I am “relocating” to either GA or NYC. Our network and its hosting agencies have employees that work all over the world, so I’m not sure why this is so touchy — I think they just want to get me on board quickly. I just need to know if I am going to have any tax / audit issues down the line if I live in NM, file my own income taxes here, but the host agency is completing my hiring paperwork and sending my paychecks with the assumption of either GA or NYC residency.
Whew, know this is a doozy. Thanks for your insights!
These situations can be confusing, generally, if the employer indicates the income was earned in a state that is not your resident state you are required to file a resident state return for the state you live in and also file a non-resident state return for the indicated state.
My main residence is in Washington state and I’m a self-employed engineer. I have licenses to work in Washington, Oregon, and Idaho. I pay B&O tax in Washington and file returns in Oregon and Idaho. I have a winter home in Arizona where i stay a few months out of the year and work remotely. None of my clients are in Arizona and I’m considered a nonresident of Arizona. Do I need to file a return and pay tax in Arizona?
If you rent out your AZ home, you will need to file a non-resident tax return to report any rental income an expenses. Additionally, you can take a deduction on your federal taxes for mortgage interest and property taxes you may have paid for the home.
The income that you earn while in Arizona will be subjected to state taxes, so it would be best to file a non-resident return and allocate the income accordingly.