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 is from Switzerland and is a dual US/Swiss citizen. He has a life insurance policy in Switzerland that he pays into every year. When it matures or when he dies (whichever is earlier) he will receive his premiums back with interest. Do we have to pay tax on this?
Hi Lory,
Typically, if you receive the proceeds from a life insurance policy as a beneficiary due to the death of the insured person, the benefits are not included in gross income and do not have to be reported. However, any interest you receive is taxable and you should report it just like any other interest received.
I live in Texas. Last year I worked part time at an apartment complex in Texas, in the next city over. The owner of the complex lives in California. When I received my W-2, it showed $98.60 taken out for California taxes. When I started to file my taxes online, it was saying I owed California $780 in taxes. Is this right? Do I owe California tax money, and if not, how do I get my $98.60 back? Thanks.
Hi Ed,
Since you lived and worked solely in Texas without ever stepping foot in California for business purposes, you should not be held liable for California taxes. When completing your taxes online, it will depend on how the software is set up to calculate your entries. This could be the reason you are seeing such a high tax due. Try creating an account with us at Rapidtax. If you have any questions along the way, our tax team can be reached by phone or livechat to help you through the short process.
If I live in FL and work as a remote energy rater for a FL based company that provides energy testing services for other states, including AL. I physically do the work, but I am not responsible for any billing or receiving any payment for these tests, my employer does all of that…In other words, no money passes through my hands. For the past 6 months I have paid in the correct FL deductions and received a FL W-2 based on where I live. I noticed on my most recent 2016 pay stub they are charging me AL withholding, didn’t move and I’m still living in FL. Am I responsible for AL withholding tax?
Hi Lisa,
Although each state differs slightly with their guidelines, if you are not physically working in AL, then you should not be held liable for taxes there. However, since you had AL taxes withheld from your paychecks, you should file a non-resident state tax return to be issued a refund back. On a non-resident tax return, you are asked if you spent any time in the state. Once you report that you did not, your taxes due will be adjusted.
Thank you so much for the answer, but I do have another question.
I need to report the time it has taken to set up the testing equipment turn it on then back off, correct? In the past month I have spent no more than 15 hours working in the state of AL. I am now no longer working there, I am working only in the state FL. So will the 15 hours is all I will need to report on the non-resident tax return? My paychecks still continue to have the AL withholding tax deducted each week, I need to get that changed since I am no longer working in another state, correct?
I guess I had in mind that by “physical labor” it was more like using a hammer and rebuilding something, there is no real physical labor to what I do, it is all the electronic equipment doing the real work.
I work remotely for a company based in California, but my employer taxes me based on my resident state, Colorado, where I resided when they originally offered me the position. However, I moved to Indiana mid-year last year, so I worked remotely from Colorado from Jan-June, and from Indiana June-Dec. My issue is that my employer taxed all my wages in Colorado as if I had resided in that state the entire year, so Colorado is the only state on my W-2. Do I need to file an Indiana state return since all of my wages were already taxed in one state? I’d essentially be paying taxes twice on the same wages if I filed in Indiana as well…
Hi Katie,
When working remotely from a different state than where the company is located, state taxes can be tricky. In your situation, the first thing to do is speak with your employer to update your address information for payroll so that this doesn’t happen again this year. For this year, you can file two part-year tax returns; one for Colorado and one for Indiana. On your Colorado state tax return, report the months you lived and worked there, the income you earned while in the state and the full amount of tax withheld from Colorado (even while you were living in Indiana). This will register as too much tax being withheld for the amount of time and income earned while living and working in Colorado; resulting in a refund of the difference. On your Indiana state tax return, report the amount of time you lived there with the income earned while in the state and the amount of tax withheld from Indiana ($0.00). Since no tax was withheld for the income earned and time you lived in Indiana, you will owe the state tax HOWEVER, you will have the refund received by Colorado for withholding too much tax.
This is a lot of information so please do not hesitate to give our tax team a call at 877-289-7580 so that we can help you through the process of filing your state tax returns.
Just out of curiousity – what are your credentials. There are 5 states (New York, Pennsylvania, Delaware, New Jersey and Nebraska) that will subject telecommuters in other states to pay the tax of the state where the company is located. (That is – if you work for a company located in one of these 5 states, you will be subject to income tax even if you telecommute from a different state unless you’re located in that state for the necessity of the company as opposed to convenience).
I see a number of answers here that suggest otherwise.
Hi David,
Thanks for your input! I appreciate your interest in getting down to the facts. As stated in the article, these are general guidelines. We completely understand and make our readers fully aware that each state has slightly different rules when it comes to taxes. Unfortunately, providing each and every state’s laws in this post would be monotonous; not to mention unbearable to read through. It is strongly suggested that each reader look further into their state guidelines for how to proceed with filing taxes if they work remotely for a company or give us a call if they are unsure.
My wife & I lived and worked in PA until mid-May of this year. We moved to AR but my wife then started to teach summer and now fall on-line classes for the college in PA where she had worked. I understand we will need to complete partial year resident taxes in both states, but I am unclear if her teaching income since moving to AR is subject to PA or AR state taxes.
Hello Steve,
Where your wife’s income is taxed depends on the employer and what state is reported in Boxes 15-20 of your W-2 Statement.