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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.<\/p>\n<\/p>\n
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.<\/p>\n<\/p>\n
This can cause a host of problems for workers and businesses if they aren\u2019t 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\u2019t owe anything.<\/p>\n<\/p>\n
For now, though, remote employees \u2014 and tax professionals \u2014 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\u2019t withhold any taxes from contractors or make payments to government entities on their behalf. For now, let\u2019s 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.<\/p>\n<\/p>\n
It\u2019s also a good idea to familiarize yourself with your own state\u2019s tax laws and other regulations that your company might require. The \u201cconvenience of the employer\u201d 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 \u201cremote work\u201d 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.<\/p>\n<\/p>\n