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. US businesses that hire international remote workers who don’t meet these criteria can potentially face penalties at home and abroad.

In some states, you may also have to reimburse your employees for their remote work costs, such as the necessary tools to do their jobs. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.

While the rules seem complicated at how does remote work get taxed first, the key is to understand where you live versus where you work. Then make sure you know the tax rates and requirements for each place. In most cases, you’ll only have to report taxes to the state you’re currently living in and not the state where the company you’re working for is based. You’ll have to rent or buy a property, update your mailing address or obtain a new driving license to prove you’re no longer eligible to pay income taxes in another state. Hence, if you live in the State of New Jersey, but the company you’re working for is based in California, you’ll only have to pay taxes to the state where you live. He joined PeopleKeep as a content marketing specialist in February 2022.

1. Ahead of tax season, here’s what to look out for when filing your taxes on remote work.
2. A sixth state, Connecticut3, only applies the rule if the taxpayer’s resident state has a similar rule for work performed for a Connecticut employer.
3. There are also state income taxes and state unemployment tax assessment (SUTA) taxes that can differ by remote work location.
4. But Washington has unique employment taxes and mandatory benefits such as paid family and medical leave, long-term care insurance, and paid sick leave.
5. “If I’m in San Francisco and need to meet several individuals in proximity, then it makes sense to use an office. Silicon Valley is extremely concentrated. Other cities, not so much,” Klein said.

Companies can hire remote workers from all over the world — so it’s important to know the tax implications of hiring a foreign remote worker. An employee may need to travel to a different state for a business trip or to work on a project for a few weeks. Depending on the length of the trip, the employee may be required to pay taxes in the state where they’re working and the state where their employer is based.

Always make sure they have the most recent information regarding your residency. Verify your employer is re-evaluating and making necessary adjustments to your tax withholding. Workers who don’t meet the definition of “contractor” may be considered employees under local jurisdictions.

The key to remote work and taxes is keeping good records, understanding tax laws, and planning. While traditional employees have taxes withheld automatically, independent contractors and digital nomads need to make quarterly estimated tax payments to avoid penalties. Talking to an accountant or tax professional can help ensure they meet all tax obligations properly when working remotely. Navigating the waters of international tax laws is tricky for companies and remote workers. US citizens who live abroad and work for a company based in the United States only have to pay taxes in their country of residence.

How taxation works for different types of remote workers

While it is the employer’s responsibility to apply tax law correctly, any missteps it makes will ultimately impact you financially. So be sure to verify, validate and follow up on any action taken to ensure the proper result. State taxes can be complicated, so before heading out to fulfill your wanderlust or escape wintry weather, understand what may be in store for you come tax season. Remote workers both within and outside the US have several opportunities to limit their tax liability. Additionally, the employee mustn’t perform any work in the state where the employer is based.

FAQs about remote work taxes

You’ll pay unemployment taxes and report their income to the states where they live, not your state. Unlike other remote workers, these hybrid workers or in-office workers live in another state but work in the same state as your organization. When you have traditional employees who live and work in the same state as your organization, there’s less uncertainty to navigate.

Such technology is already a part of many workplaces and will continue to shape the labor market and HR. Here’s how employers and employees can successfully manage generative AI and other AI-powered systems. Typically, employers should support workers’ efforts to accommodate court orders. Though they aren’t obligated to, many employers not only allow for time off, but also offer paid time off in these situations. The United States doesn’t levy taxes against non-US citizens living outside the country who work for US-based businesses.

Trust G2’s multi-country payroll leader to keep you compliant

Stay up-to-date on Pilot’s latest features and learn industry news on international hiring and remote work. Renew now to continue enjoying your exclusive Executive Network benefits. While it does require a bit of extra work upfront, once you get the hang of it, you’ll have the freedom to attract talent, no matter where they live. People deserve to live and work for great companies no matter where they live.

Withholding individual income taxes

So, if your job’s office is in state A, but because of the pandemic you’re living and working full time in state B, you’d pay income and all other taxes to state B. If state B has lower income taxes than state A, that would be a boon for remote workers who moved. It could also be a reason for more people to pull up stakes now that they’re less tethered to the office.