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Remote workers that receive Form W-2 from their employers don’t have self-employed status. 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. If you have a side hustle, freelance gig, business venture or are otherwise an independent contractor (i.e. you receive a 1099 form for your income), you can deduct business expenses.

Your home state may credit any income taxes that you pay in the other state. First, an employee should consider whether they are a permanent or temporary remote worker. A permanent remote worker is a worker whose worksite is how are remote jobs taxed outside the geographic location of the business. A temporary remote worker has retained their worksite at their employer’s geographic location, even if they have been performing their work tasks at home due to the pandemic.

Taxable Employee Benefits and Costs of Remote Work

However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states. Some U.S. states require individuals who work outside the state to pay state income taxes unless they can prove they are no longer state residents. Colorado, for example, requires proof of non-resident status, while other states (those who have state income taxes) may have more lenient regulations. You’ll need to determine each remote employee’s tax residence and then register your business in every state where you have a remote worker.

• In a handful of states that offer neither reciprocity nor credit, you may end up owing tax in both the state where you’re living and working and also in the state where your employer is.
• The price of tax preparers can vary wildly, and it may be beneficial to fork over a bit more than you typically do for someone who knows the new guidelines and can adequately file your remote-worker return.
• In response, TeleBright asserted that it was not “doing business” in the state and further challenged the Division’s position based on both Due Process and Commerce Clause grounds under the U.S.

But if you work in a different state, then you’ll usually need to file a nonresident tax form in the state where you worked, listing the income and taxes you paid and earned in that state. It’s important small business owners know their role and what’s required of them to remain in payroll compliance. https://remotemode.net/ Processing payroll for remote employees can be complicated, but using our state guides to understand your obligations on a state-by-state basis will make the process much easier. Generally, an employee’s wages are taxed on a state level in the state in which the work is performed.

Local Income Tax (LIT)

For regular W-2 employees, working from home may have a minimal impact on your taxes, but there are plenty of situations where it can get complicated. If you work and live in different states and municipalities or if you lived in multiple states throughout the year, you may have to file state or local taxes in each jurisdiction. For now, though, remote employees — and tax professionals — are going to have to navigate labyrinthine state tax laws one by one. Consider getting help from a tax professional or employment attorney who is licensed in the states where you have remote employees to determine your tax responsibilities. Your business can get an employee retention credit for keeping employees (including remote workers) on your payroll if your company was affected by the coronavirus.