Taxes for remote workers can be complex, varying based on factors including where you live, where your employer is located, and whether you work across state or country lines.
Which states do you pay taxes to when you work remotely?
When you work remotely, the states where you may owe taxes depend on where you live and where your employer is based. Here are the most common tax scenarios:
Living and working in the same state as your employer.
- You only owe state taxes in your home state.
- Example: You live and work in California, and your employer is also in California—your taxes are straightforward, and you only pay California state taxes.
Living in one state and working for an employer in another state.
This is where things get complicated. You may have to file taxes in both states depending on:
- Reciprocity Agreements: Some neighboring states (like Illinois and Indiana) have agreements that allow you to pay taxes only where you live.
- Nonresident Tax Rules: Some states (like New York) may require you to file a nonresident return if your employer is based there.
- Credit for Taxes Paid: If you pay taxes to another state, your home state may offer credits to avoid double taxation.
Here are a few examples of scenarios you could encounter if you live in one state and work for an employer in another:
- You live in New Jersey and work for a New York employer (remotely). New York has a “convenience of the employer” rule—so unless your employer requires you to work remotely, you may still owe New York taxes. You’d file a nonresident return in NY and a resident return in NJ, possibly getting a credit for NY taxes paid.
- You live in Texas (no state income tax) but work remotely for a California company. You only owe federal taxes since Texas has no income tax. California generally doesn’t tax remote workers who don’t physically work in the state.
The “Convenience of the Employer” rule.
These states may require you to pay taxes if your employer is based there, even if you work remotely elsewhere:
- New York
- Pennsylvania
- Connecticut
- Delaware
- Nebraska
What about states with no income tax?
If you live in a state without an income tax, you won’t owe state taxes there. These states don’t have state income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Tennessee
- Washington
- Wyoming
Additional considerations for remote self-employed or freelancer nomads:
- Must pay self-employment tax (Social Security & Medicare).
- May need to file quarterly estimated taxes to avoid penalties.
- Business expenses (like co-working spaces) may be deductible.
How are you taxed when working remotely from another country?
U.S. citizens & expats:
- If you’re a U.S. citizen working abroad, you still owe federal income tax. You may qualify for the Foreign Earned Income Exclusion (FEIE), which allows you to exclude a portion of your foreign earnings.
Local tax laws:
- You might also owe taxes in the country where you live, depending on tax treaties and local regulations.
Foreign Tax Credit (FTC):
- If you pay income tax in another country, you can get a U.S. tax credit to avoid double taxation.
State residency:
- Some states (like California and New Mexico) still require state taxes unless you cut ties completely (no home, driver’s license, or voter registration there).
Filing taxes in multiple states: resident vs. non-resident taxes.
Resident taxes:
- You are typically a resident of the state where you have your permanent home (domicile).
- Residents must file a full-year resident return and report all income earned from any state (including out-of-state income).
- Most states offer tax credits for income taxes paid to other states, preventing double taxation.
Non-resident taxes:
- If you earn income in a state but do not live there, you must file a non-resident return in that state.
- You only pay taxes on income sourced from that state (e.g., wages from a job, rental income, or business earnings).
- The state where you are a resident may give you a credit for taxes paid to the non-resident state.
Part-year resident taxes:
- If you moved during the year, you may be considered a part-year resident in both your old and new states.
- Typically, you file part-year returns in both states, reporting only the income earned while you lived there.
What should you do?
- Check if your state has reciprocity with your employer’s state.
- Confirm if your employer’s state has a “convenience rule.”
- See if your home state offers a tax credit for taxes paid to another state.
- Keep detailed records of where you earn income and how long you stay in each place.
- Consider establishing residency in a tax-friendly state if you’re a domestic nomad.
- Work with a tax professional to navigate multi-state or international tax issues.
We know that tax laws can be complicated and sometimes overwhelming. For case-specific questions, consider reaching out to your state’s department of taxation. As a remote worker, consulting a tax professional can also make it easier to navigate the complexities of income taxes.
If you’re still unsure about your tax liability or want to explore tax benefits in your state, we’re here to connect you with the right resources and professionals.
