How Do Taxes Work When You Work Remotely?

The freedom to work wherever you want comes with many perks. Remote work also comes with the obligation to pay taxes to the right states. Let’s look at how taxes work when you’re working remotely.  

How are taxes withheld when you work remotely as a W2 employee?   

If you’re a full-time employee—you receive a W2 form—but work from home, taxes are withheld from your paycheck based on state and employer rules.  

How do taxes work when you work remotely as an independent contractor?  

For independent contractors—those who are self-employed and use a 1099 form—taxes are a bit different. You’ll be on the hook to pay taxes to your state of residence and any others that you worked in, based on state laws.  

Which states do you pay taxes to when you work remotely?  

Workers in the United States must base their income taxes on their physical location. It’s trickier for employers, who must withhold state taxes on a state-by-state basis.  The reality is, every state has its own tax laws, so you’ll want to do some research.  

The following states don’t have income taxes:   

• Wyoming 
• Washington 
• Texas 
• Tennessee 
• South Dakota 
• Nevada 
• Florida 
• Alaska  
   

If you work remotely in a different state than your employer, you may need to pay taxes in two states.  

It’s increasingly common for employees to live in a different state from their employers. If both states have income tax, you may be taxed twice on the same income: once by each state.  

Some states require taxes to be paid for as little as one day of work. Other states may have reciprocal agreements with one another so you need only pay taxes in your home state.  

Talking to a tax professional or researching tax laws in your state will help you figure out what taxes apply to you.  

Filing taxes in two states: Resident vs. Non-resident taxes  

If an employee is required to pay taxes in multiple states, they’ll file as a resident for the state they live in and as a non-resident for the state where they work.  

So yes, you might have to pay taxes twice. But there’s good news for remote workers. Most states offer a tax credit on your return for any taxes paid to a non-resident state. That way you’re not incurring double taxes for working remotely.  

Some states are more aggressive than others when it comes to taxation. A state could enforce a “convenience of the employer” rule. Let’s imagine a business headquartered in New York has remote employees outside the state. New York could pull those employees into NY taxes even though those employees never set foot in the state.  

You’ll need to review the tax laws for any state you worked in to determine your tax liability.  

How do taxes work for remote workers who moved during the tax year?  

States may audit former residents to confirm they no longer live there. The more evidence that you have that you live in a new state (utility bills, voter registration, etc.), the harder it would be for your former state to claim you as a resident for tax purposes.  

Can remote workers qualify for a home office deduction?  

Under the current tax law, W2 employees may not deduct home office and business expenses. (This law expires in the 2025 tax year.) These tax deductions only apply to 1099, self-employed workers.  

How do taxes work if you work nomadically?  

If you’ve been location-hopping, staying in one spot for a few weeks or months and moving on, you may have to pay taxes in the states you stayed in. Every state has its own rules about how long an employee can work there as a non-resident or part-year resident without owing income tax. Some states require taxes for as little as one day of work.  

All this tax information is a lot to take in. We get it. To get answers to case-specific questions, try reaching out to your state department of taxation. Additionally, as a remote worker, you may find it easier to rely on a tax professional to navigate the nuances of income taxes.  

Many people have come to us asking how taxes work when you work remotely. We hope you found this information useful! If you’re still scratching your head about your tax liability or want to know what you should be doing to take advantage of tax benefits in your state, the team at Commas is here to guide you to the right resources and professionals. If you’re interested in knowing more, reach out to our team today! 

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at www.usecommas.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.