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!
My husband and I live in Texas (actual, physical–I reside there all year–address). He works for a company that is based in Connecticut, they pay him, but the W2 has a Florida address (confused yet, because I am). When he’s not on the road, he works from home, BUT my husband travels for his job, all over the US. And it varies from one year to the next year. He spent several weeks working in CA, IL, and others, (in hotels, not permanent addresses) so do we have to pay state taxes in all those places? There was nothing on his W2 last year, in the state area (but he’d only been there a fews months in 2014). Thank you!
Hi Denise,
Your husband has a slightly overwhelming tax situation but a lot of the confusion can be handled by taking a look at his pay statements that he receives from his employer. These statements will show which states his employer is withholding taxes from. These are also the states that will be listed on his W-2 form at the close of the tax year. Generally speaking, he is responsible for taxes in the state(s) where he physically works and the state where he resides. That being said, each state has their own set of guidelines when determining when non-residents become liable for taxes when working in the state. For example, some states (ie: NY) hold non-residents liable for taxes the day they begin to conduct business in the state. Other states offer a threshold of time before they become liable. Just double check on the state government websites.
I will be moving my residence to NH from NJ this year so as I understand it, I will have to file two NJ state forms in 2016: a part-time resident and a part-time non-resident.
I will continue employment with my NJ company, spending some of my time working remotely from NH and the rest of the time traveling to the NJ office, as needed. Since NH has no state tax, the time I spend working remotely would not be subject to state income tax. However, the time I spend in the NJ would. I’m not sure how much “onsite” NJ working time will be needed. How to I handle a situation like this?
Thanks.
Hi Tena,
Although you will need to report that you were a resident of NJ for part of the year, you will only file one NJ state part-year tax return. On this return, you will report the income you earned there and the time frame you resided there. From here on out, while living and working from NH, you will need to file a NJ non-resident return to report the income earned while physically working there. You will not need to file a state tax return for NH since, as you mentioned, it is an income tax-free state. ALL income earned will be reported on your federal tax return.
I am evaluating a full time employment opportunity in NY state starting sometime in Feb 2016 and need some advice on tax complications resulting in my decision to travel back to my home state of Indiana every week end. At this time, I anticipate working in NY 4 days a week and traveling to NY on Monday morning, flying back home on Thursday night. I will be working the 5th day from home. I also have about 32 days of paid time off plus weekends where I obviously wont be in NY. In effect, I might be working around 180 days or less in NY and rest of my time will be in Indiana.
How will my state tax status be affected by this arrangement? Will I be a resident of both states and end up paying state taxes in both states?
Hello,
Generally speaking, you are responsible for taxes in the state where you physically work and earn an income and the state where you reside. In your case, this would be NY and GA. It is important to know that each state has their own set of rules when it comes to when non-residents of a state become liable for state taxes; some enforcing a threshold of time before taxes are owed and some enforcing that taxes are owed the very day business is conducted. In New York’s case, they enforce the latter. You are responsible for taxes as a non-resident the very day you start working there. That being said, you’ll want to look into the rules for Indiana and Georgia.
If my employer is located in Florida, but I work for that employer in Alabama, do I have to pay Alabama State Tax?
Hi Ron,
Yes, you will owe taxes for Alabama. You are responsible for taxes in the state where you physically work and earn an income and where you reside permanently. In this case, you are working for a company in FL which is income-tax free. if it was not, you would not be responsible for FL taxes since you do not live there or physically work there.
I live in PA. The temp agency that I am considered an employee of is also located in PA and they are the ones that I receive my paycheck from. My current temp assignment is in NJ though. I am not considered an employee of the NJ company and no income I receive is from them. Do I file state taxes for both NJ and PA?
Hi Ange,
Although you are an employee of the agency, you are still physically working in NJ. Depending on the amount of time you will be working in NJ (each state has different rules), you will be liable for NJ state taxes as a non-resident. Temp employees are taxed the same way as permanent employees when it comes to state taxes. For example, if you were a permanent employee for State A and also lived in State A, but your employer gave you an assignment to work in State B for a good length of time, you would then be liable for State A taxes (as a resident) and State B (as a non-resident) abiding by State B law.