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. If you offer taxable employee benefits such as employee stipends, you’ll also need to report the additional taxable income to the states that require it. This is because taxable benefits are additional income and must appear on an employee’s Form W-2.
It is a good idea to know your tax residency in each country before the end of the tax year. This helps ensure you comply with filing requirements and avoid penalties. You may need to file tax returns in multiple countries, so learning the local rules in each place is key. Having a remote and distributed team can lead to the complicated issue of remote work taxes.
This can cause a host of problems for workers and businesses if they aren’t careful. US citizen high earners (above $100,000 per year) may owe US taxes even while working abroad, though. Either way, US citizens working overseas should still plan to file tax returns, even if they don’t owe anything.
For now, though, remote employees — and tax professionals — are going to have to navigate labyrinthine state tax laws one by one. People living outside the US who work as independent contractors must remember to save money for their own taxes. Employers generally don’t withhold any taxes from contractors or make payments to government entities on their behalf. For now, let’s stick to tax liabilities for remote workers who live outside the United States but work for companies based in the US. Under this rule, if an employee lives in one state but works remotely for an employer based in another state, they are only subject to taxes in the state where they live.
Which states have the ‘convenience of the employer rule’?
It’s also a good idea to familiarize yourself with your own state’s tax laws and other regulations that your company might require. The “convenience of the employer” test is a set of questions used to determine whether an employee is working remotely for the convenience of an employer rather than their own. Employers who hire employees outside their home states must fulfill their duties to withhold state taxes on a state-by-state basis. While “remote work” is often used as a blanket term, the way a remote employee works can have some important tax implications. However, Klein stresses that the employee perks of remote working may not always be in workers’ financial interest.
‘Work from anywhere’ downside: potential double taxation from states. Here’s what to know.
Our expert tax report highlights the important issues that tax preparers and their clients need to address for the 2024 tax year. Stay informed and proactive with guidance on critical tax considerations before year-end. — Hugo Johnson-Driscoll is a content writer at the Association of International Certified Professional Accountants, representing AICPA & CIMA.
- You can file a nonresident state tax return to avoid being taxed on the same income twice.
- Consequently, your employer is responsible for reporting your income and withholding unemployment or social security tax to the state where you live.
- Generally, the state where your employee lives and works is the one that taxes them.
- Following these tips and strategies can help ensure you meet tax obligations as a digital nomad.
“It is important to have a basic understanding of the general relevant concepts. This includes economic nexus and market-based income sourcing,” he explained. Klein, who advises several remote retailers, discussed how businesses can navigate these issues. “If I’m in San Francisco and need to meet several individuals in proximity, then it makes sense to use an office. Silicon Valley is extremely concentrated. Other cities, not so much,” Klein said. Since states’ pandemic guidance on temporary telecommuting has long expired, CPAs’ advice will be highly sought after as companies remodel their tax strategies accordingly.
However, self-employed workers may be able to deduct business expenses. Suppose you become liable for collecting and remitting sales tax for states due to remote work arrangements. In that case, you’ll need to register for a sales tax permit and file sales tax returns to that state on the schedule that applies to your business (usually based on the number or value of transactions). In this article, we’ll explain how taxes work for different types of remote employees, which states have unique tax circumstances regarding remote work, and how remote work affects employee benefits. Although there has been an increase in employees working at home since coronavirus, under tax reform, employees can no longer take federal tax deductions for unreimbursed employee expenses like work-from-home expenses.
You Can Deduct That? 6 Surprising Tax Deduction Tips fo…
As someone who has written about HRAs for almost three years and personally used both a QSEHRA and ICHRA, he has a deep understanding of the benefits and how they can help small employers and their employees. Chase has written more than 350 blog posts for various companies and projects throughout his career. He’s worked with digital marketing agencies and in-house marketing teams. He’s also an aspiring fiction author, landscape photographer, and small business owner. There are also local taxes that you may have to pay or withhold from your employees’ paychecks, depending on their place of residence. Also, should you perform work onsite with your employer, you could again be subject to tax liability in the employer’s state.
How do remote work arrangements affect sales taxes and nexus?
The “convenience of the employer” rule is a tax law that applies to remote workers who work for an out-of-state employer. Workers in New Hampshire and Tennessee may be subject to state taxes on investments and other income, but these states don’t charge state taxes on wages. Unlike full- and part-time employees, self-employed and contract workers in New Hampshire may be subject to state taxes on their income in certain situations.
It’s also important to consult a tax professional, since the tax situation — as well as what it takes to be a resident of that particular state — varies drastically by state and is far from intuitive. What adjustments need to be made will depend chiefly on state and local tax laws governing your new residence. Remote has a comprehensive guide available for download that explains how to set up payroll for remote workers, localized services, and contractor payment services. A hassle-free way to ensure you’re compliant with remote worker tax implications is to use an international payroll processing guide. Without an EOR, most US companies choose to treat how does remote work get taxed international employees as independent contractors.