[{"@context":"https:\/\/schema.org\/","@type":"Article","@id":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/how-taxes-work-for-remote-workers\/#Article","mainEntityOfPage":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/how-taxes-work-for-remote-workers\/","headline":"How Do Taxes Work if You Work Remotely: A Guide to Navigating Your Taxes","name":"How Do Taxes Work if You Work Remotely: A Guide to Navigating Your Taxes","description":"Statistics unequivocally show that remote work is here to stay. According to Upwork, one...","datePublished":"2023-04-06","dateModified":"2023-04-06","author":{"@type":"Person","@id":"https:\/\/moneydoneright.com\/author\/logan-allec\/#Person","name":"Logan Allec, CPA","url":"https:\/\/moneydoneright.com\/author\/logan-allec\/","identifier":4,"image":{"@type":"ImageObject","@id":"https:\/\/secure.gravatar.com\/avatar\/6e74dd0453a5871d1dcfde6d40d9494765ca8bfdb01927cefee4564d4bee9075?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/6e74dd0453a5871d1dcfde6d40d9494765ca8bfdb01927cefee4564d4bee9075?s=96&d=mm&r=g","height":96,"width":96}},"publisher":{"@type":"Organization","name":"Money Done Right","logo":{"@type":"ImageObject","@id":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","width":488,"height":60}},"image":{"@type":"ImageObject","@id":"https:\/\/moneydoneright.com\/wp-content\/uploads\/how-do-taxes-work-if-you-work-remotely.png","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/how-do-taxes-work-if-you-work-remotely.png","height":460,"width":1900},"url":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/how-taxes-work-for-remote-workers\/","about":["Personal Taxes"],"wordCount":1668,"articleBody":"Statistics unequivocally show that remote work is here to stay. According to Upwork, one of the world\u2019s largest freelancing platforms, the number of remote workers in the United States will reach 36.2 million by 2025.A growing number of independent contractors and full-time remote workers try to keep up with how taxes work if you work remotely, as tax laws vary by state.The vital thing to know is that remote workers can easily avoid double taxation if they live in one state and work in the other. In this guide, we\u2019ll explain how taxes work if you work remotely and show you how to increase your tax refund.Table of ContentsToggleFederal Taxes for Remote WorkersState Taxes for Out-of-State WorkersWhat is the \u2018Convenience of Employer\u2019 Test?Taxable Employee Benefits and Costs of Remote WorkWorking With Remote Workers Outside of the United StatesHow to Limit Your Tax Liability as a Remote WorkerFrequently Asked QuestionsSpeak with a CPAFederal Taxes for Remote WorkersAll companies must withhold federal taxes from the salaries they pay to their employees.The same rules apply to full-time employees who live in the same state where they work and go to the office at least a few times per week and remote workers that do most of their work from home.The IRS considers you a full-time employee if your employer issues you Form W-2 whether you work predominantly from home or an office. Consequently, your employer has to withhold these taxes from your pay:Federal income tax.Medicare.Federal Unemployment Tax (FUTA).Social Security Taxes.Independent contractors that conduct their business in the same state where they live report federal taxes independently with Form 1099-NEC. The same goes for state and local taxes, so if you\u2019re a freelancer, you\u2019re responsible for filing state taxes.State Taxes for Out-of-State WorkersThe tax rules for remote workers that work and live in the same state are simple. They must pay federal and state (if applicable) taxes to the state they live in.The only difficulty companies that hire remote workers might face is that they may have to pay different local taxes for their remote employees depending on their place of residence.The tax situation is far more complex for out-of-state workers who commute to work across state lines or work in one state and live in another.Remote workers who don\u2019t live in the state where they work don\u2019t have to file taxes in both states if they work from home.Hence, if you live in the State of New Jersey, but the company you\u2019re working for is based in California, you\u2019ll only have to pay taxes to the state where you live. There are several exceptions to this rule.Remote Workers Commuting Across State LinesTraveling for work across state lines can put you in a unique tax situation because you might face double taxation. This means you\u2019ll have to pay taxes in the states where you live and where you work.Some states have reciprocal agreements that enable remote workers to pay taxes in just one state and avoid double taxation.For instance, if you live in West Virginia, Pennsylvania, Washington DC, or Virginia and work in Maryland, you\u2019ll 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.Home-based Remote WorkersEmployers that hire out-of-state employees who predominantly work from home must report state taxes to the states where their remote employees live and not the state where their companies are registered.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.Remote workers from the following states don\u2019t have to pay state income tax:Texas.Washington.Alaska.Tennessee.Wyoming.South Dakota.Florida.New Hampshire.Independent contractors that move from one state to another while working remotely from the same employer must establish a domicile or obtain a permanent residence to avoid double taxation.Sometimes, the state to which a remote worker relocated might conduct an audit to establish that a freelancer is no longer a resident of their previous home state.You\u2019ll have to rent or buy a property, update your mailing address or obtain a new driving license to prove you\u2019re no longer eligible to pay income taxes in another state.It\u2019s also worth noting that you can continue paying taxes in your home state if you temporarily work from another state. Remember that all states limit how long nonresidents can work before becoming eligible for state income taxation.What is the \u2018Convenience of Employer\u2019 Test?Employers that don\u2019t specifically require employees to work remotely may have to pass the \u2018Convenience of Employer\u2019 test if their workers are based in one of the states below:New York.Pennsylvania.Arkansas.Nebraska.Delaware.According to the so-called convenience rule, employers must report taxes to the state where their organization is based if its employees work remotely out of convenience.Consequently, remote workers employed by companies based in \u2018convenience states\u2019 might face double taxation.Taxable Employee Benefits and Costs of Remote WorkCompanies that offer group term life insurance, bonuses, vehicles, employee stipends, and other taxable employee benefits to remote workers must report these benefits when filing state taxes.However, some states don\u2019t require organizations to report taxable employee benefits they offer to their remote workers, which is why you must check state tax laws for each remote worker you hire.Offering an employee stipend is one of the easiest ways employers can cover the cost of remote work while remaining compliant with state tax laws.Still, you\u2019ll need a company policy if you want to reimburse your remote workers for their internet subscription, home office setup, or mobile phone bill expenses.Working With Remote Workers Outside of the United StatesNavigating 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.However, you may owe taxes in the US if you earn more than $100,000 per year, so you must check your tax responsibilities before you file a tax return to avoid generating tax debt.US companies that want to employ an international remote workforce cannot do so directly unless they register a legal entity in a different country or utilize the services of an Employer of Record organization.Both solutions are expensive, which is why most businesses treat non-US nationals they hire as independent contractors. International remote workers must meet the following criteria to qualify as independent contractors:Have no restrictions regarding when they work.Remote workers must be able to choose how they receive payments.Remote workers should have control over the rates they charge.Work with two or more companies.US businesses that hire international remote workers who don\u2019t meet these criteria can potentially face penalties at home and abroad.It\u2019s also worth adding that independent contractors must pay taxes by themselves because companies usually don\u2019t withhold taxes for them.How to Limit Your Tax Liability as a Remote WorkerGeographic location is one of the critical factors that determine a remote worker\u2019s tax liability. Hence, being familiar with state and local tax laws can help you spend less on taxes.Here are a few things you can do to keep your tax obligations at a minimum while working remotely.Learn more about state laws before relocating to a new state \u2013 Find out as much as possible about the local and state tax laws before deciding to move to a different state. Doing so will help you avoid being taxed twice for the same income.Define your status \u2013 Don\u2019t assume all types of remote work are the same. Ask your employer if you\u2019re classified as a full-time remote worker or an independent contractor so that you can know which taxes you must pay.Avoid working as an independent contractor from outside the US \u2013US citizens living abroad must ensure they qualify as independent contractors. Insisting on being hired through an EOR is usually the safest option for remote workers who don\u2019t meet the independent contractor criteria.Frequently Asked QuestionsAre All Remote Workers Self-Employed? Remote workers that receive Form W-2 from their employers don\u2019t have self-employed status.  Can I Claim Tax Deductions on a Tax Return if I am Working Remotely? Full-time remote workers can only make standard or itemized tax deductions available to all other taxpayers. Independent contractors can claim business expense deductions on tax returns.  Do I Have to Pay Taxes in the US if I Live Abroad? US citizens who live abroad and work for a US company must file a tax return in the United States and pay taxes in their country of residence unless they\u2019re earning over $100,000 per year.  Should I Pay Local Taxes if I Work Remotely? Remote workers must pay local and state taxes even if their employer is in a different state.  Speak with a CPAHow taxes work when you work remotely depends on where you live. In most cases, you\u2019ll only have to report taxes to the state you\u2019re currently living in and not the state where the company you\u2019re working for is based.\u00a0However, different rules apply if you live abroad or commute to work over state lines.Call 866-8000-TAX or go to choicetaxrelief.com to schedule a free consultation with a CPA who can assist you with filing taxes as a remote worker.Our Pick For Best Tax Relief Company\t\t\t\t\t\t\t\t\t\t\t\t\t\t.st5-50967.btn.btn-default:hover{border-color: #4db848;color: #4db848;background: #fff !important;}\t\t\t\t\t\tLearn More\t\t\t\t\t\t\tBBB Accredited: A+ Rating With 5\/5 RatingGuarantee: 30-Day Moneyback GuaranteeReasonable Fees: Lower than Industry AveragesTax Attorneys and CPAs: Decades of Combined Experience\t"},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"Taxes","item":"https:\/\/moneydoneright.com\/taxes\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"Personal Taxes","item":"https:\/\/moneydoneright.com\/taxes\/\/personal-taxes\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"How Do Taxes Work if You Work Remotely: A Guide to Navigating Your Taxes","item":"https:\/\/moneydoneright.com\/taxes\/personal-taxes\/how-taxes-work-for-remote-workers\/#breadcrumbitem"}]}]