Remote work tax considerations: How and where to pay

Even if you prefer using software and preparing your taxes yourself, CPA and Tax Strategist Chika Obih recommends hiring a tax professional for at least the first year you work in a state different from where you live. That way you’ll at least have a basic understanding of your tax situation that you can follow in the future. Thirty-two states have graduated income taxes similar to the federal income tax. Ten states have a flat income tax, and nine states have no income tax at all. Payscale offers location-based pay solutions that untangle all the complexities of your tax situation. Our compensation plans handle the specifics of your tax requirements, down to the details of your locality.

  • Even when states provide a credit, workers will have to shoulder that double tax burden until their tax returns come.
  • Plus,  as you embark along this journey for increased productivity, lower costs and greater work life balance of your workforce, you’ll see that the change was well worth it.
  • Typically, you’ll pay taxes in the state you live in (unless that state doesn’t have income taxes).
  • If your job is in New York but you lived and worked in Virginia, it’s possible you’d have to pay income tax in both states.
  • It’s essential to pre-vet any GEO and have a clear agreement, as it’s not uncommon for GEOs to outsource locally or employ very opaque pricing.

Cannon Advisors’ Bryan Cannon shares some tips to assist remote workers in navigating their 2021 taxes. If you have employees who recently moved to a new state and worked remotely, they’ll need to establish a new domicile, or permanent residence, to avoid being taxed in both their current and former states. Many states will audit former residents to determine if they’re no longer a resident. The more evidence your employees have that they live in their new state, the harder it is for their previous state to claim them as a resident for tax purposes. For example, according to the state of Maryland2, residents of the state who work in Washington, D.C., Pennsylvania, Virginia, or West Virginia only file their state income taxes for Maryland, thanks to a reciprocity agreement with those places.

Up to $1 million deductions for business expenses

You’ll have to rent or buy a property, update your mailing address or obtain a new driving license to prove you’re no longer eligible to pay income taxes in another state. Independent contractors that move from one state to another while working remotely from the same employer must establish a domicile how do taxes work for remote jobs or obtain a permanent residence to avoid double taxation. 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.

Imagine a company like Automattic, registering to pay tax in 75 countries! In the short-term the process is time consuming and off-putting, especially if you’ve never employed an internationally-based remote worker before. However, in the long term it’s the more recommended option, plus there are new solutions to help you (see below). The property factor looks to the value of a company’s real and tangible personal property owned or rented and used within a state. In response to an increased remote workforce, businesses may shift the location of offices, or possibly provide office space more conveniently located for those remote employees. In addition, where there is a shift in work locations, there is an anticipated corresponding movement of certain technology, furniture, and other equipment.

State Taxes for Remote Work—Who Do I Pay Taxes To, Anyway?

If you and your spouse are both teachers, that can be up to a $500 tax deduction. Self-employed business owners can deduct up to $1,080,000 (for tax year 2022) for qualified business equipment like computers, printers, and office furniture. The amount you can deduct is still limited to the amount of income from business activity.

Though they aren’t obligated to, many employers not only allow for time off, but also offer paid time off in these situations. 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. In this case, your resident state and employer’s state probably have a deal between them called a reciprocity agreement.

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