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Ahead of tax season, here’s what to look out for when filing your taxes on remote work. Working remotely can be a boon or a bust for your taxes, depending on where you live. To say taxes are a complicated affair is a massive understatement; let’s just say there’s a good reason accountants exist.
If you work and live in different states and municipalities or if you lived in multiple states throughout the year, you may have to file state or local taxes in each jurisdiction. Geographic location is one of the critical factors that determine a remote worker’s tax liability. Hence, being familiar with state and local tax laws can help you spend less on taxes. A government work permit is also required before foreign remote workers can earn any income in the country. A ‘Special Tourist Visa’ allows long-term travelers to stay in Thailand for up to 270 days. It’s possible for remote workers to obtain a Work From Bermuda certificate, allowing them to work and live on the island for up to a year.
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American citizens working abroad have to pay taxes to whatever region they live in; remember, in most scenarios, you have to pay taxes where you do the work. Employees on a remote work schedule sometimes get confused if they live in one state and work in another. If the employee and employer reside in the same state, there likely won’t be much complication when tax time comes. In many states, having an employee or any official presence in that location triggers a sales tax nexus for your organization. Local tax jurisdictions, such as counties and cities, further complicate this.
Employers who hire employees outside their home states must fulfill their duties to withhold state taxes on a state-by-state basis. 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. 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). Since the start of the Covid-19 pandemic, there has been a dramatic increase in remote and hybrid work. For regular W-2 employees, working from home may have a minimal impact on your taxes, but there are plenty of situations where it can get complicated.
State Taxes for Out-of-State Workers
For remote workers, all of these differing rules mean it’s important to know the state laws that will affect you. Getting your paycheck withholding right is generally a shared how do taxes work for remote jobs responsibility between you and your company, Bannasch said. Full-time remote workers can see vast differences in their taxation status based on their worker status.
Price can also be a factor when hiring a tax professional for this most unconventional of filing years. The price of tax preparers can vary wildly, and it may be beneficial to fork over a bit more than you typically do for someone who knows the new guidelines and can adequately file your remote-worker return. Doing your due diligence when hiring a true professional will give you peace of mind in the long run. A recent Harris Poll showed that many people are “not very” familiar with the tax laws in their state of residency or the state where their employer is located. Taking time to read up on the tax implications of remote work will help to stave off frustrating hiccups down the road.
You work from home…but where do you pay taxes?
„As emergency orders are lifted, the guidance is changing,” said Eileen Sherr, director for tax policy and advocacy with the American Institute of CPAs. „As a taxpayer, you can’t just assume the state isn’t going to go after you,” she said. Start by browsing our open jobs and feel free to apply to experience it for yourself. If you travel often, check out our article on how to work remotely and travel.
- If your employer operates out of another state, you typically won’t have to pay two sets of remote work taxes.
- Many people who found themselves working remotely took the opportunity to relocate to low-tax states or areas that better suit their lifestyle, such as the beach or mountains.
- There’s also bipartisan interest at the federal level to stop the practice, including proposed legislation called the Multi-State Worker Tax Fairness Act of 2020 that would tax remote workers by residence only.
- The ongoing shift to remote work calls into question the satisfaction of these existing jobs requirements, the ability to renegotiate these benefits, as well as the approach to pursuing similar credits and incentives in the future.
Consequently, your employer is responsible for reporting your income and withholding unemployment or social security tax to the state where you live. This rule only applies if you live in a state that levies a state income tax on its residents. For instance, if you live in West Virginia, Pennsylvania, Washington DC, or Virginia and work in Maryland, you’ll only have to pay state taxes in your home state. You can file a nonresident state tax return to avoid being taxed on the same income twice. They paid about $12 billion more into the Social Security system than they took out in 2010, according to the Social Security Administration’s most recent figures. However, some international remote workers and digital nomads express some reservations about working in Bali.
Work remotely on a schedule that suits you
Most states offer a tax credit that counts against what you owe to the nonresident jurisdiction where you worked and owe taxes. However, the credit may not fully eliminate the amount paid to the second state if its tax rate is higher than where you live. By simplifying things, we hope to make the topic of taxes a bit less overwhelming. Search the two states and „reciprocity rule” to determine whether they work together. If your two states aren’t on this list, you’ll be required to pay taxes for both.
- Employees who expect no Arizona income tax liability for the calendar year may claim an exemption from Arizona withholding.
- States with convenience of the employer rules include Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania.
- In jurisdictions in which an employer is required to withhold, failure to properly withhold taxes can become a liability for the employer, plus potential interest and penalties.
- For example, if your employer state considers you a statutory resident if you spend more than half the year there, count days to make sure you don’t cross that line.
- „You don’t have to keep a detailed log [of your phone or internet usage] and figure out to the minute what is for business or personal use,” Cagan says.
- It’s possible for remote workers to obtain a Work From Bermuda certificate, allowing them to work and live on the island for up to a year.