Understanding How Taxes Work for Remote Workers

Additionally, the employee mustn’t perform any work in the state where the employer is based. To meet this test, the employer must require the employee to work remotely rather than the employee simply choosing to do so out of their own convenience. 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. While “remote work” is often used as a blanket term, the way a remote employee works can have some important tax implications. This article will help you understand out-of-state remote work tax implications, including which individuals are affected by these laws and your responsibilities as an employer.

State taxes, on the other hand, vary significantly and can be complex for remote workers who work outside their employer’s state. State residency rules differ, with some states considering you a tax resident if you spend a certain number of days there or earn income within their jurisdiction. Remote workers may need to file non-resident state tax returns if they work in a different state than their employer, and, in some cases, even if they only occasionally work from a different location. Employees working remotely from another state temporarily, such as for business trips or short-term projects, may face tax requirements in both their home and host states. Many states mandate non-resident tax filings for those who earn income in their jurisdiction. The rules vary significantly by state, often depending on the duration of the stay and the amount earned.

Still, you’ll need a company policy if you want to reimburse your remote workers for their internet subscription, home office setup, or mobile phone bill expenses. Consequently, remote workers employed by companies based in ‘convenience states’ might face double taxation. It’s also worth noting that you can continue paying taxes in your home state if you temporarily work from another state. Remember that all states limit how long nonresidents can work before becoming eligible for state income taxation.

• States such as New York, Connecticut, Delaware, and New Jersey apply the convenience rule.
• If you own an LLC or other small business, and if you have employees on your payroll who work remotely, you may have some questions about how remote work taxes.
• On February 17, Microsoft released an update to its business line of software in Windows 2000.
• Checking with the tax authorities in the country where you spend most of your time working is the best way.
• In some states, you may also have to reimburse your employees for their remote work costs, such as the necessary tools to do their jobs.
• US citizen high earners  (above $100,000 per year) may owe US taxes even while working abroad, though.

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“Proper substantiation keeps reimbursements out of income and off payroll.” Withholding obligations typically attach to the jurisdiction where an employee physically spends their working time. More than 30 million Americans now perform duties outside a central office, and that shift changes the scale of state withholding and business registrations.

FAQs about remote work taxes

• You’ll pay unemployment taxes and report their income to the states where they live, not your state.
• In January 2019, Microsoft announced that support for Windows 10 Mobile would end on December 10, 2019, and that Windows 10 Mobile users should migrate to iOS or Android phones.
• Because of the strict abode requirements, tax practitioners should closely evaluate each client’s facts and circumstances because it is likely that many employees will not have a tax home abroad.
• For both remote employees and employers, staying informed about tax regulations and tracking work locations can help ensure compliance and avoid costly penalties.

Remote personnel can create nexus that triggers registration, payroll set‑up, and state filings even when the company has no local office. As an employer, it’s your responsibility to ensure that your remote workers are compliant and meet local tax law requirements. The United States doesn’t levy taxes against non-US citizens living outside the country who work for US-based businesses. 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.

To ensure compliance and maximize deductions, check your state’s rules or talk to a tax expert. Remote work has changed the way we work, but what about how we file our taxes? You’re not alone if you’re wondering whether your home office expenses are tax-deductible. Throw remote workers into the mix, and that can add even more complexity to your tax situation. When in doubt, don’t hesitate to consult with a qualified tax professional who can provide personalized advice for your situation. Spending significant time abroad may qualify you for the foreign earned income exclusion.

The Arc team provides articles and expert advice on tech careers and remote work. From helping beginners land their first junior role to supporting remote workers facing challenges at home or guiding mid-level professionals toward leadership, Arc covers it all! Choosing a benefits company that can help you administer these stipends, while also managing tax liabilities and withholdings, is highly recommended for the convenience of the employer. Generally speaking, the state where your employee lives and works is the one that taxes them.

Microsoft, in 2000, released new products for all three lines of the company’s flagship operating system, and saw the beginning of the end of one of its most prominent legal cases. On February 17, Microsoft released an update to its business line of software in Windows 2000. The company also released the Microsoft SQL Server 6.5, which had built-in support for internet applications. In November 1996, Microsoft Office 97 was released, which is the first version to include Office Assistant.

Factoring extended travel into taxes for remote workers

In this case, you usually pay unemployment tax to the employee’s state of residence. But the COVID-19 pandemic and new technology have made it much more common. According to WFH Research1, in August 2024, 12% of full-time employees were fully remote. Microsoft Corporation, based in Redmond, WA, is a global leader in software, services, and solutions with annual sales revenue exceeding $55 billion.

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Companies that offer group term life insurance, bonuses, vehicles, employee stipends, and other taxable employee benefits to remote workers must report these benefits when filing state taxes. Some states have reciprocal agreements that enable remote workers to pay taxes in just one state and avoid double taxation. If you work remotely for a company based in another country, it’s crucial to understand how these treaties affect your tax obligations. Nexus can be created when an employee’s activities generate sufficient business presence in another state. Regular sales calls, servicing clients, or maintaining an office can trigger registration and corporate tax filing obligations. States assess factors such as payroll, property, and sales sourced to the state to determine apportionment impacts.

It is a good idea for them to keep careful records of income and expenses to calculate tax liability. It is a good idea to know your tax residency in each country before the end of the tax year. You may need to file tax returns in multiple countries, so learning the local rules in each place is key. This can include the amount of time you spend in a place and your connections there. Remote workers that receive Form W-2 from their employers don’t have self-employed status.

In the same month, Microsoft acquired Australia-based video editing software company Clipchamp. In April 2021, Microsoft announced it would buy Nuance Communications for approximately $16 billion (~$18.2 billion in 2024). In 2021, in part due to the strong quarterly earnings spurred by the COVID-19 pandemic, Microsoft’s valuation came to near $2 trillion.

For example, suppose your organization is based in New York, but you have an employee working from home in Utah. Each state has its own rules regarding how long an employee can work in that state as a nonresident or part-year resident without owing employment income tax. In some cases, though, an employee may need to file nonresident tax returns. 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.

In most cases, you’ll only have to report taxes to the state you’re currently living in and not the state where the company you’re working for is based. Remote workers must pay local and state taxes even if their employer is in a different state. US citizens who live abroad and work for a US company must file a tax return in the United States and pay taxes in their country of residence unless they’re earning over $100,000 per year. Offering an employee stipend is one of the easiest ways employers can cover the cost of remote work while remaining compliant with state tax laws. However, some states don’t require organizations to report taxable employee benefits they offer to their how does remote work get taxed remote workers, which is why you must check state tax laws for each remote worker you hire.

Just like traditional employees, remote workers who work in the same state as their employer are generally required to pay that state’s individual income tax. For foreign nationals working remotely for U.S. companies, tax obligations depend on their country’s tax laws and any tax treaties in place with the United States. Generally, these remote workers do not owe U.S. income taxes if they are not U.S. residents, although they must adhere to local tax laws in their country of residence. Reciprocal agreements are beneficial for remote employees who work in neighboring states, as they prevent the need to file non-resident tax returns and avoid double taxation on income. Instead, the employee pays state income tax only in their state of residence, making tax filing more straightforward. At the federal level, remote workers are generally required to file taxes based on their place of residence rather than their employer’s location.