Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
Where do I pay state taxes if I live in a different state than my employer?
As a remote worker, you’re required to pay tax on all your income to the state you live in (if your state has personal income tax). This is true no matter where your employer is located.
If you have an employee working in a different state than where you normally conduct your business, your tax obligation is based on the idea of whether you are ‘doing business’ in that state. In some, just having an employee in their state can be considered an act of ‘doing business’ and you would have to follow the tax rules of that state as well.
Looking to build a remote team?
To help, let’s break down some of the key factors you need to be considering when looking at your taxes as a remote worker or company. If you still feel confused remote work taxes or overwhelmed after reading this, you may want to reach out to a professional accountant who specializes in remote workers, so they can better guide you.
Insights brings industry professionals and thought leaders together to deliver the fresh perspectives and keen insights needed to drive your business forward. A comprehensive program that gives employees the knowledge, tools and support they need to take charge of their finances. A comprehensive suite of solutions and investment experience that help your employees maximize their potential to reach their long-term goals. We offer timely, integrated analysis of companies, sectors, markets and economies, helping clients with their most critical decisions. Learn from our industry leaders about how to manage your wealth and help meet your personal financial goals. If you’re an educator working from home, you could receive a $250 deduction for expenses such as computer equipment.
Employee or independent contractor?
As 1099 contractors aren’t employees, they have to pay their taxes as an independent business to their state of residence . In this case, you and your employee could be subject to tax liabilities in both states. Reciprocal agreements, or a compromise between states that allows nonresident workers to request tax exemption from the other state, exist in some places to prevent double taxation, but not every state has one. In these cases, the employee’s resident state may issue a tax credit for any income paid to your organization’s state. If employees work remotely in your same state, these rules also apply, usually with only a few changes to local taxes.
- As a recommendation, be sure to require a separate dedicated work area and clear working hours and break times.
- Meaning that if I work for a company in San Francisco, but they allow me to work remotely and I’m a resident of some other state, then I don’t have to pay California tax on my compensation because I’m not working in California.
- Hiring and paying remote workers in a different country presents its own set of challenges.
- For CFOs and controllers of portcos, an understanding of the following issues — several of which affect Portco A in the illustration — can help them address potential tax liabilities resulting from an increasingly mobile workforce.
The same options may be available for paying remote employees abroad too. From startups to large corporations, US companies of all sizes use Pilot for international payroll, benefits and compliance. It’s also possible that you may be entering into a working relationship with a digital nomad who works for your US company while they’re a tax resident in one country and a citizen of another. In this case, and especially where a visa is involved, they may be subject to multiple tax obligations or even enjoy tax incentives (e.g., Portugal’s NHR status award). For some, the indefinite possibility of telecommuting turned into a unique travel opportunity, or even a chance to relocate to their favorite rural destination while maintaining a big-city job.