Are Taxes Different When Working Remotely?


remote work

Are Taxes Different When Working Remotely?

Tuesday, June 11th, 2024

The rise of remote work has reshaped how and where people can do their jobs. The freedom to work from anywhere, eliminate a daily commute and enjoy a better work-life balance are some significant perks of the digital age. However, this flexibility can also complicate your tax situation, especially if you live in a different state from your employer’s home base. You must grasp these nuances to comply with all applicable laws and optimize your outcomes.

1. Understanding Multistate Taxation

If you work remotely for an employer located in a different state, you might be subject to tax obligations in both states. Generally, the IRS taxes your income in the state where you earn it. However, some states have reciprocity agreements that allow residents of one state to work in another without having to file non-resident tax returns. Without such agreements, you may need to file a resident tax return in the state where you live and a non-resident tax return in the state where your employer’s HQ is.

2. Employment Status and Its Tax Implications

Your employment status also significantly affects your tax situation. If you are a full-time, salaried employee, your employer will typically withhold applicable state income taxes for the state where their home office is. In contrast, you are responsible for paying estimated quarterly taxes if you’re self-employed as a freelancer or independent contractor.

As a freelancer, the location where you work typically determines your tax liability. You’re responsible for understanding and adhering to the tax laws of the state where you work, which could be different if you’ve moved and are still contracting for businesses in other states.

3. Determining Where to File

Each state has a specific definition of what constitutes a resident for tax purposes. Generally, you are taxed as a resident if you spend 183 days or more in a state or your primary home is in that state. You should know these rules to file your tax return correctly.

The Benefit of Experienced Tax Guidance

If you’ve started a new chapter of your career working with a company in a different state, here’s what you need to know about how remote work can affect your tax situation.

  • Complex tax laws: Tax laws can vary significantly between states. Remote work may further complicate your tax situation, particularly if you need to file multiple state returns or allocate income between states. An experienced tax advisor can help you comply with all relevant laws and minimize your overall tax liability.
  • Audit risks: Incorrectly filing your taxes can increase your risk of an audit. A tax professional will double-check that your returns are correct and substantiate your filings if the IRS chooses to audit you.
  • Tax optimization: Tax professionals can identify opportunities to reduce your tax liability through deductions and credits you might be unaware of. This knowledge is especially valuable for remote workers who may have home office expenses or other unique deductions specific to their work situation.

Get Knowledgeable Tax and Accounting Advice for Remote Work

Working remotely offers more flexibility and freedom, but it can also significantly change your tax situation. Full-time employees or independent contractors who work in different states from their employers should understand these differences to comply with all tax regulations and get the maximum benefit from their tax returns.

At Clear View Business Solutions, we specialize in helping full-time remote workers and freelancers manage tricky tax situations. Our expert team is ready to provide the guidance you need to make the most of your remote work arrangement while being mindful of how your employment situation could change your tax obligations. Contact us today to start a long-term partnership.