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 – my wife lives in California and her company is headquartered in the Boston, MA. They have given her a choice to set up her taxes as a remote worker or as a CA resident. What are the pro’s and con’s of each? Thanks.
Filing as a CA resident while working in MA will cause her income to be double taxed. However, she will be able to file a resident CA return and a Non-resident MA return to receive a credit from CA for taxes paid to MA.
If she chooses to file taxes as a remote worker then she’ll only have to file a resident tax return to the state she lives in.
Hello,
I recently moved from Maryland to Colorado. I will be working for my company in Maryland, but doing so from home in Colorado. The intention for the year is to travel back on site 1week every month. I currently only have a W-4 filled out for Maryland and a W-2 for Maryland. How do I handle my taxes? Any help would be greatly appreciated.
It will be dependent on how your employer reports the income that you earn, but because of your outlined situation, you may have to separate and report the income that you earn remotely from the income earned when you travel on site. When you travel to another state and earned income there rather than working remotely from your home, the income is subjected to taxes by certain states. This varies from state to state, so it may be best to reach out to a local state account for further advisement.
Hello,
I live in San Diego, I work remotely in San Diego for a company in Seattle(tax free state ) . So could you please advise how will the taxes be calculated based on which location
Thanks
Because you are earning the income in San Diego, the income is considered earned in San Diego and will be subjected to CA taxes. Regardless of how your company chooses to report your taxes, the resident state will always have the right to tax any income that you earn within the time period that you resided there.
I live in New Hampshire and started working for a Massachusetts company in 2016, commuting there throughout 2016 and most of 2017. For my 2016 taxes, I filed a MA non-resident return with no issues.
Last month, I started working from home in NH for the same company; my payroll manager says I do not need to have MA taxes taken out of my paycheck because I’m working from home in NH, but I’m not sure — is this correct? And would working from home exclusively change anything regarding how I file my 2017 taxes?
Because you are no longer physically traveling to MA for work and are now working remotely in your full-year resident state of NH, your employer is not required to withhold MA taxes as all of the income being earned within the state of NH. Working remotely from home in your resident state would only mean that you will not have to file state tax forms this year. As long as there isn’t state information being reported in boxes 15-20 for another state, there should be no further cause for concern.
Hi, If I live in TX, travel to CA and work there Mon – Thu. I fill Texas as residence in W4 when I join.
Do I still pay income Tax for CA?.
If Yes, what are the benifits of doing a C2C and filing it from TX rather than W2?
Is C2C really worth doing it ? or should I stick with W2 if the taxes doesn’t matter.
Thanks,
The income that you earn in another state as a non-resident is subjected to taxation in the state that is earned in. Reflected on your income statement, depending on which state is shown, you will need to file for the specific state shown when it comes time to file in the coming tax season.
A C2C is similar to a W2, however, it requires that you set up a corporation and identify yourself as a member of that said corporation. A 1099-MISC or a W2 would suffice.