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Ask HR: Where Do Remote Employees Pay Taxes?

Sometimes, if employees live in one state but have been working in another, they’ll receive a credit on their resident tax return to offset the nonresident state tax liability. But that’s not always the case, as different states have different laws. A person who lives and works remotely in Washington, for example, can perform work for a company that is based in California without having to pay California state taxes. However, remote workers who travel to other states and work from there may have to file a nonresident state tax return. Remote workers do not have to file nonresident state tax returns unless they physically travel to another state and perform work while they are there.

  • That said, don’t be afraid to take deductions for legitimate expenses.
  • 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.
  • The convenience rule says that if you’re working from home for your own convenience and not for employer necessity, then that’s treated as a New York work day.
  • Workers must tackle issues like visas, culture shock, and language barriers.
  • Once you do, either your employer state will send you a refund for the taxes withheld, or the states will settle up with each other—in that case, your resident state will give you a tax credit for the withheld amount.
  • Though they aren’t obligated to, many employers not only allow for time off, but also offer paid time off in these situations.

It is important to note that if you are a U.S. citizen or resident alien, you are required to report all of your worldwide income on your U.S. tax return, even if you do not owe any taxes to the United States. You will need to file a U.S. federal income tax return if you meet the filing requirements and you have income that is subject to taxation in the United States. You can file your tax return electronically using the IRS e-file system or by mailing a paper tax return to the IRS. US citizens who live abroad and work for a US how do taxes work for remote jobs company must file a tax return in the United States and pay taxes in their country of residence unless they’re earning over $100,000 per year. 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. In order to be aware of and properly address such issues, employers need a method to properly track remote employees and where they are providing services, including when such work is on a long-term temporary basis.


The benefit is paid from state disability insurance funds collected through automatic payroll deductions. Workers living in California pay that tax — about 1.1% of their wages. Besides leaves of absence, states have different laws on short-term disability, workers’ compensation and various wage and hour rules, as well as employment protections such as discrimination. Few studies have yet compared the relationship between revenue growth and companies’ remote work policies, says Nicholas Bloom, an economist and professor at Stanford University who is also an adviser to Scoop. That’s in part, he says, because most survey tools study individuals’ experiences with remote work, rather than corporate policies.

  • Reciprocity means that your employer doesn’t have to withhold anything for state taxes, and all you have to do is file a state return for your resident state.
  • “You want to make sure that if ever you get audited… you have a reasonable defense for yourself,” she says.
  • Taxation authorities in some Eastern European, African, Middle Eastern, Asian, and South American countries do not tax its citizens over foreign earned income.
  • New York was taking a real broad interpretation of the rules and they were winning.
  • For instance, if you work remotely in the same state as your organization (whether that’s Arkansas or California), expect no complications about who receives your state income tax.
  • When you’re crystal clear on what you need to pay, you reduce your risk of overpaying or incurring tax penalties.

If you are working remotely for an international company, things get a bit more complicated. You may be required to pay taxes in the country where your company is based, as well as in Canada. It is important to check with both the tax authorities in Canada and the country where your company is based to determine your tax obligations. This is true whether you are working remotely for a Canadian company or an international one. The good news is that there are many tax credits and deductions available to offset the taxes you will owe on your foreign-earned income.

Did you work remotely last year? A surprise tax might be waiting for you.

As you look beyond the pandemic, Deloitte can show how the tax function can play a bigger role to help protect and create value for your business. Our experienced tax and human capital professionals and innovative technology solutions can support you. Together, we can align your strategy, policy, and operations to address the potential talent and tax implications of hybrid and remote work. Price can also be a factor when hiring a tax professional for this most unconventional of filing years. 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.

  • Cost-of-performance sourcing is likely to reflect a more significant impact related to remote working.
  • So if you’re not quite sure how to handle your taxes this year, you may be able to save money and have greater peace of mind if you work with a tax professional.
  • Although the issues themselves are not new, the impact of those issues is now much greater since more individuals are working remotely than ever before.
  • People who work from home (or nomadically) don’t always have access to the information they need.
  • If they live in a convenience rule state, they often need to pay taxes to their employer’s state or file for exemption via a reciprocal agreement.