Implications of “Work from Anywhere” When Remote Workers Cross State SPARK Blog

Leveraging their local knowledge, we can ensure that all employment taxes are recorded and paid accurately. Global payroll compliance requires that you know how and where your remote employees must pay their taxes and contributions. Organizations must consider the tax implications of cross-border work arrangements carefully. For this reason, it is very common for companies to hire international remote workers as contractors instead. Even though you weren’t living in your home country at the time of earning the salary, you are still a tax resident, and therefore you have to pay your home country’s revenue authority also. So telling you tax authorities how does remote work get taxed that you paid your income tax due that was due to them to another revenue authority won’t do you any favours.

Do I Have to Pay State Taxes If I Work Remotely?

They may learn that New Jersey State disability law covers maternity and apply for benefits. The employer may not even be aware that the employee has been working from New Jersey. Upon receipt of a claim, the New Jersey Department of Labor might contact the employer, since their wages were never reported to New Jersey. The Labor Department might notify the Department of Taxation, which may have no record of wages or withholding. Employers should still document any injury with a written statement from the employee, and photos of the injury and job site if possible. The statement should explain whether the injury was in the course of employment, which may be less clear if employees are working from home.

1. For example, working remotely in a foreign country within the EU for an extended period means employees must eventually pay personal income tax and social security contributions in that country.
2. But the freedom that comes with remote work can also cause confusion when it comes to your taxes.
3. However, they will typically receive a tax credit to eliminate double taxation of their income.
4. Remote and hybrid work can improve employee productivity and help employers access a larger talent pool.
5. Depending on where you live and where your employer is based, you may be subject to the income tax rules of two — or more — states.
6. When crossing borders while remote working, you must understand that, you will be liable for tax within the country where you are situated when you earned an income.

What are payroll deductions & how do they work?

Employers must generally cover employees under Workers’ Compensation policies based on where they are working. If employees are in another state, a policy addendum may be needed, which could be an added expense. In a nutshell, when remote work crosses state lines, it can be hazardous to employers – in ways that aren’t necessarily apparent. If you choose to file a paper return, you can use our Tax Form Selector to find out which form is right for you. The form selector will guide you through a series of brief questions and recommends the easiest form to file. Employers may elect to take any approved overpayment as a credit on a future return by indicating the amount on line 3 of Form MO-941.

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. Yes, U.S. citizens or resident aliens working abroad are subject to income tax. You may also be liable for country-specific taxes if you work for a foreign employer. While certain states practice reciprocal tax agreements, workers who spend part or all of the year working outside their state might need to file multiple tax returns. For states with reciprocal tax agreements, workers will need to submit a form to their employer to file taxes for them.

Resources for Employers

Consider an employee who works for a company in the Bay Area but lives in New York and works for a company with headquarters in California. They stayed with their parents in Arizona for a few months to escape the winter, working remotely from their backyard. While the masks are (mostly) off, the hybrid workplace isn’t going away anytime soon.

1. If you receive a Federal W-2 form from your employer then it doesn’t matter if you work from home 100% of the time, 50% of the time or not at all – you can’t deduct work expenses to reduce your taxable income.
2. These localities have rules, regulations, and requirements for handling withholdings, deposits, and filings.
3. As with remote employee taxes, the employee’s location impacts which laws and regulations are applicable.
4. Pockets of localities throughout many states require additional income taxes to be withheld and remitted.

Under these agreements, neighboring states decide to tax cross-border workers only in the states where they live. There are currently 30 reciprocal agreements across 16 states and the District of Columbia (to see if your state has one, click here). Last year, 13 percent of full-time employees in the U.S. worked from home and 28 percent worked a hybrid model.

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. Some states will audit former residents to determine if they’re no longer residents. 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 residents for tax purposes. U.S. remote workers – the cheapest way to do this is to set payroll up yourself, and if you only have a few employees then it doesn’t need to be too arduous.

Individuals can be taxed based on both where they live, and where they earn income. “If you’re moving state to state, talk to your tax professional, let them know your situation and then they can better advise,” Obih says. This can give you peace of mind knowing that you’re in compliance with local and state tax codes and won’t have issues at the end of the year or even years down the road. If you have a space in your home used solely for business, you can deduct your expenses with either the simplified option or the regular method. Which filing tactic saves you the most depends on your actual costs and the size of your home and office space.

If your employee works in a different state than where your company is registered, that’s where things get more complicated. Your organization will need to register with local and state tax agencies for each state where you have employees. Your payroll and HR managers will also need to speak with that state’s labor and unemployment agencies to make sure they are following proper protocols and procedures.

Get started for free with OfficeRnD Hybrid to manage a hybrid workforce while seamlessly integrating your tax accounting apps. W2 employees with a side hustle can also pass the home office deduction test if — and only if — the space, equipment, and supplies in the home office are used exclusively for that purpose. Working for a U.S. company means that you will be taxed both federally as well as by the state (or states) where your work takes place.

Our goal is to provide you with an overview of how payroll taxes for remote employees work, so you can avoid stress and maintain compliance. For international scenarios, most countries require you to have a local business presence before you can hire remote workers. If your team of remote workers includes W-2 employees, check state laws to ensure that you comply with payroll tax, wage and hour, PTO, and other requirements.