DISCLAIMER: The information and materials we share in this article are intended for reference only. The information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. We strongly encourage you to seek the advice of a professional to help you with your specific needs.
Tag: Remote Work Taxes
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Tax Implications for Companies With Remote Workers
Continue ReadingThe remote workforce has expanded as rapidly and as surprisingly as a tube of cinnamon rolls that just popped open, secretly unnerving anyone stuck holding the exploded tube. Employers continue to find ways to accommodate employees while also forging ahead towards a new normal, and the emotions and plans behind allowing folks to remain remote or bringing people back into offices are being digested. But one thing is universal for employers, regardless of this inflection point – taxation.
Upon completion of the Constitution, Benjamin Franklin waxed poetically about the durability of the document, concluding cynically that “in this world, nothing is certain except death and taxes.” So true, ol’ Ben.
Let’s dive into what tax implications all American employers with remote workers need to know.
Tax Implications for Companies With Remote Workers
Table of Contents
- How does remote work change federal tax implications?
- Who is actually considered a remote worker?
- What is the double taxation predicament folks are murmuring about?
- The “convenience of the employer” rule
- How remote workers are avoiding double taxation
- How do employers handle nomadic remote workers?
- Where it does get hairy for employers
- Staying ahead of the game
But before we proceed, we should note that you should consult a tax professional to help you understand your specific financial situation. None of this should be considered financial advice.
How does remote work change federal tax implications?
The good news is that this part is simple – having remote workers does very little, if anything, to change your company’s federal taxes. There are no special tax credits or tax penalties imposed federally based on where an employee resides.
This does not apply to offshore workers, however, as today we are only talking about your team members working within the United States.
Who is actually considered a remote worker?
It has long been typical for workers to live and work in different states, for example, people working in D.C. rarely live in the district, rather in Virginia or Maryland as it is much more reasonably priced, and commuting is normal. In other words, our government is used to handling workers that live in a state different from their employer.
That said, who is actually considered a remote worker?
If your company is paying employees on a W-2 basis while they work in a state other than where you are licensed to do business, that is a remote worker, according to the IRS.
If your company is paying folks on a 1099 basis, they are not considered a remote worker, they are classified as an independent contractor or freelancer.
Whether you’re a large firm or a tiny operation, knowing the differences between W-2 and 1099 team members is crucial.
What is the double taxation predicament folks are murmuring about?
If you’ve been on social media of late, you’ve probably seen people proclaiming double taxation. You’d think tea is about to be dumped into a harbor en masse as they discuss people who work across state lines from their employer.
For example, if your company is headquartered in New York and you have allowed all team members to work remotely, if one moves to Nebraska for lower cost of living, they may be subject to state income taxes in Nebraska and non-resident income taxes in New York.
It’s a serious challenge because all states have their own taxation structures. Even cities, counties, and municipalities can have their own taxation rules in addition to state and federal rules.
The “convenience of the employer” rule
That’s where the “convenience of the employer” rule comes in. It may feel like the pendulum of control has swung firmly to the side of employees, but employers certainly have an advantage in this one way.
The rule is such that an employee may be subject to the aforementioned double taxation if they have moved for their own personal preference or convenience rather than due to an employer mandating the move.
In other words, the employer doesn’t carry the income taxation burden for an employee’s residence preference.This rule is not applicable in all states however, only the following five:
- Connecticut
- Delaware
- Nebraska
- New York
- Pennsylvania
Massachusetts adopted a temporary rule during the pandemic, and states like New Hampshire had considered litigation to do the same. Arkansas observed the rule during the pandemic, but the state governor ended the practice in 2021.
Typically, an employee in this scenario can file for a tax credit if being double taxed, but that credit can be denied under this rule.
How remote workers are avoiding double taxation
Remote workers are catching on and moving to states that do not observe the convenience rule:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
For employers that intend on keeping teams working remotely, spending recruiting budgets in these specific states will grant quite a competitive advantage.
How do employers handle nomadic remote workers?
If your company is paying remote workers via W-2 and has invited them to work remotely or hired them to do so, there is a chance that some will opt into the nomadic lifestyle.
Does this make your tax filings more complicated than filings for a standard remote employee?
Not really, that part is mostly up to the employee. And like federal workers living in Virginia but working in D.C., this is nothing new.
A nomadic scenario you might be familiar with is actors. These pros live somewhat nomadically and have to pay taxes if they’re in a certain spot for a specific amount of time (which varies by location). If they’re shooting a film for several months, even if they don’t own property but rent or stay in a hotel, they may still have to pay taxes to that city or state.The IRS uses a 183-day rule to determine “permanent” residency, but that number will never apply to someone working remotely from their RV who is trying to get to every national park before 2025.
Therefore, we harken back to the “convenience rule” wherein an employee’s migratory methods are more on them than they are on an employer.
Where it does get hairy for employers
There are two scenarios that have complicated hiring for employers. First, the shifting laws surrounding disclosure of salary ranges in job listings has made some employers unwilling to advertise open roles in certain cities and states.
Regarding taxes, however, the big hiccup is that if your company has even a single employee living in some cities or states, it could prompt required registration for a sales tax permit, and the company would have to file sales tax returns according to that state’s schedule. County and city tax registrations and filings may also be required.
This kind of compliance is easy for large organizations that have entire teams dedicated to this, but can become cumbersome for smaller teams, which is why hiring out of state isn’t burden free.Companies of all sizes are still navigating these waters and choosing which states they will and won’t hire from. There is ample opportunity for employers to stand out in recruiting by making clear their hiring practices, and explaining them – especially for those willing to add some extra compliance work to their standard operating procedures.
Staying ahead of the game
Staying ahead of the taxation game is critical – ask any billionaire how they got so rich, and you’ll find a common theme emerges regarding their maximization of tax advantages.
How can you get into the groove of staying ahead? Follow tax experts like the Tax Queen on social media so that taxation issues are organically hitting your feed and keeping you up to date without your having to seek out new information.
Know that potential employees looking to remain remote are preferring states that don’t collect income taxes. This will help your recruiting efforts immensely.Most importantly, staying compliant with local, state, and federal governments may feel overwhelming, but hiring a tax expert that specializes in remote workforces is a lifesaver for your company.
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Your Complete Guide to Tax Implications for...
Continue ReadingCountless people have joined the remote workforce during the pandemic, many with no intentions of ever going back into an office. Meanwhile, many of us have been working remotely for decades, enjoying different types of nomadic lives. Now that we’re all in the same pool, we should probably talk about remote worker tax implications. It’s not an ultra mega super fun topic, but one that we’ll work through together – deal?
But first, some caveats – this is absolutely not financial advice, and you should talk to your tax professional about your specific financial situation. If you don’t have one, we recommend hiring a good one because you’ll often end up paying less (even with their fees)! The second caveat is that a self employed individual can work remotely but is not necessarily a remote worker. For the context of this article, the phrase “remote workers” indicates someone that works for a company but works from a location other than that company’s physical office. Finally, the following is geared towards folks working in America – tax implications for working abroad, even temporarily, are much different.
Your Complete Guide to Tax Implications for Remote Workers
Table of Contents
- What’s new for taxes in 2023
- How to avoid the double taxation conundrum
- How do remote workers get taxed when permanently relocating?
- The impact of remote work on your benefits
- Don’t assume you can write off home office expenses…
- Why do some employers refuse to hire from certain states?
- How to stay ahead of remote worker tax implications
What's new for taxes in 2023
Just because we got a grip on tax implications last year, doesn’t mean we are all up to speed this year. So we asked the expert, Heather Ryan (aka the Tax Queen) what we need to know about 2023 since she’s a federally licensed tax practitioner authorized to represent taxpayers in all 50 states, and she had great news!
Ryan said, “There really haven’t been any changes for 2023 for W2 workers. Taxes for remote workers vary based on the state of residence or domicile and possibly the state of the company as well.”
”For example,” Ryan continued, “NY companies are required to withhold NY state income taxes whether or not the worker lives or physically works in NY. The remote worker will be responsible for filing and paying NY taxes as a non-resident.”
While there aren’t major changes for how remote workers get taxed in 2023 (hooray!), working across state lines can still get a little hairy – let’s walk through that next.
How to avoid the double taxation conundrum
The reason remote work taxation is complicated is that every state has different laws, so working between state lines may muddy the waters. If you live in the same state as where the company is headquartered, there should be no change in income taxes.
If you move to another state, there are potential tax liabilities in both your home state, and the state where the employer is located. It’s called the “convenience of the employer” rule, and states that impose this rule are Pennsylvania, New York, Nebraska, Delaware, and Connecticut.
What normally happens is you receive a tax credit when you file to eliminate the possible double taxation, but it is possible to be denied your home state credit under the “convenience of the employer” rule. For example, if you live in California and work remotely for a company in Delaware, you would be subject to the state income tax in California, and a non-resident income tax in Delaware as it follows the convenience rule.
To avoid the convenience rule, consider living in and working for companies in one of these states:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
No matter where you reside, you may still have tax liabilities for city or county taxes for where your employer is headquartered AND where you live, and tax credits don’t apply in this scenario.
But the good news is that there is minimal impact on your federal income taxes, if any, when working remotely. Your employer still withholds taxes from your paychecks, just as it has always been done.
How do remote workers get taxed when permanently relocating?
Some folks leave the state where they were originally hired, and being considered a “permanent” resident varies from state to state, but if you have relocated, the implication is that you aren’t going back after a certain number of months, so you’ll need to file according to what your tax professional advises. The IRS uses the 183-day rule to calculate residency within the United States, so many states follow the same rules.
It is also important to note that just moving somewhere doesn’t always trigger a magical notification to any governmental agency – some states consider you a new resident when you register your vehicle, others when you change your driver’s license, and others when you complete your voter registration.
Further, each state has different rules for how long an employee can work in their state without owing income taxes, so in some instances, you may have to file non-resident tax returns.
If you have been working in your RV traveling across state lines, visiting Airbnbs, or just split your time between various states, it can get complicated depending on the length of each stay – just ask any actor or athlete who works all across the nation.
When multiple states are involved, or the question of permanent versus non-permanent resident comes into play, it is extremely important to seek guidance from a qualified tax advisor, especially one experienced in assisting remote workers.
The impact of remote work on your benefits
Benefits offered are not typically impacted by where someone is physically working from, but there are a few exceptions to be aware of. First, some companies consider their on-site offering part of their benefits package, for example, they have a gym in the basement, or childcare at headquarters. These tangibles are something many employers expect to just be unused by remote workers, not typically compensated for in other ways (but it doesn’t hurt to ask when negotiating a salary).
Besides missed benefits, if a company offers employee stipends, that is fully taxable, so they’ll need to report that added income to their state because it must be included on your W-2 Form. it impacts the total amount of taxable wages as well as withholdings for your individual income tax. Employers typically know this and automatically do this, but if you enjoy stipends, make sure your tax professional is aware of it so they can check that everything is reported correctly.
Don’t assume you can write off home office expenses…
Just because you work from home and you added a corner desk in your dining room, you might not necessarily qualify for a home office space deduction on your taxes because it depends on your employment status. In the past, it depended on employment status and how you actually use a space, but the latter is currently irrelevant.
That is because the 2017 Tax Cuts and Jobs Act put the home office deduction on hold through 2025 for employees who receive a W-2, regardless of working from home half of the time or all of the time. During this period, you cannot deduct work expenses to reduce the income you are taxed on.
You can request reimbursement for office expenses from your employer when you pay out of pocket, but we recommend coming to an agreement before shelling out any cash unless you’re willing to spend it regardless of reimbursement. For example, many people upgraded their office chairs during the pandemic as they worked from home, and while a reimbursement would be nice, an unbroken back is even more nice.
Why do some employers refuse to hire from certain states?
There are two major reasons why employers refuse to hire from certain states. The first has nothing to do with taxes, but is because they have to publicly disclose salary bands in job listings.
The second is that in many states, if an employer has an employee living in that state, it could trigger requirements for them to register for a sales tax permit and file sales tax returns according to that state’s schedule (as well as county and city taxes). Smaller organizations are often just not equipped to set up an entire business footprint for a single employee, so they may be unwilling to hire from states with these requirements.
How to stay ahead of remote worker tax implications
States have become more aggressive with tax collection of late, so staying informed is extremely important. Doing this helps you to make more proactive moves. If you know a specific state has a taxation scenario that feels oppressive, you might avoid it. Knowing another state has no income taxes might attract you. But you also now know that it matters where your employer is doing business as well.
Follow tax experts like the Tax Queen on social media platforms so updates are organically hitting your feed and educating you and keeping you informed about tax matters.
Lastly, we’ll reiterate that tax codes have gotten fairly complex for remote workers, especially digital nomads, so it can save you so much money by hiring a knowledgeable expert, but more importantly, it can keep you out of trouble with the local and federal governments.
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RV Accounting Tips – How to Minimize...
Continue ReadingWhen discussing multi-state income tax, for most working RVers we usually encounter a situation where the RVer has not been paying taxes to various states but perhaps they should. An inherent risk of inviting unwanted attention from state tax authorities already exists. Even though a properly handled multi-state tax scenario might result in paying more income tax overall, there is still plenty of room to make sure no more tax is paid than legally necessary.
Following are four rules of thumb to keep your multi-state tax bills as low as possible and the tax agents at bay.
1. Domicile does not matter; where you work does matter
The first rule of thumb is your domicile in a no-tax state does not provide you carte blanche avoidance of state income tax in any and all states. As you travel about the country, if you spend time in one or more of the 42 states that tax individual income you may be on the hook for income tax despite the fact that you domicile in a no-tax state. (1)
Each state has its own tax law nuances, but there are similarities from state to state. Income tax states generally focus on one key factor to determine tax liability—if you are physically present in their state (even as a non-resident) while providing income-generating services. In such cases, you are “subject to” income tax. Where you domicile or claim your residency status doesn’t matter. Now, just because you are subject to income tax doesn’t mean you always have to pay income tax, we’ll discuss this in more detail below. First let’s lay some more ground work.
2. Time matters
If you spend too much time in a given income-tax state, you can be considered a “resident” for income tax purposes. This is an important distinction. If you are subject to income tax as a non-resident, it is generally on the amount of income you earned during the time you spent in the state. As a resident, you are subject to income tax on your entire year’s-worth of income.
For example, in Virginia, if you are a non-resident but spend more than 6 months in a given year (does not need to be consecutive) in the state, you are deemed a resident (aka “statutory resident”) for income tax purposes and must pay income tax on your entire year’s income to Virginia…even if you have to pay income tax to other states for time you spent earning an income in those other states! In such cases, the state may offer a credit for tax paid to another state, but this just adds even more complexity to an already difficult situation.
In Colorado, the statutory residency threshold is also 6 months. In Arizona, it’s 9 months. Interestingly, California—a state known for being aggressive on taxes—allows a non-resident taxpayer to file as a non-resident even if they spend the entire year in their state. TAX TIP: If you plan to spend a significant part of your year in a tax state, make sure you don’t exceed the maximum time allowed before you are statutorily deemed a resident.
3. Mode of work (usually) does not matter
Most states do not distinguish between what type of work you do or how you perform your work when determining income tax liability. In other words, there is no difference if you do all of your work over the internet in your RV or spend your time in a client’s or employer’s office building. The primary factor is that you are in a tax state performing services for financial gain or profit. If you are physically in their state, then you are subject to income tax.
You will not read such specific language in the tax instructions. You must call the state tax authority (often referred to as Department of Revenue, Franchise Tax Board, or Department of Taxation) and ask for further explanation and definition of the terms you read in the tax form instructions. Be wary, tax agents are human too and don’t know everything about their own tax law. On one occasion, I called the Virginia Department of Taxation three times, spoke with a different agent each time, and got three different answers to a particular question.
I’ve not called every state (yet) to ask about mode of work, but so far Georgia is the only state (and I called more than once to verify) where an individual can work remotely (i.e. over the internet) and not be subject to income tax.
4. Know the state’s income thresholds
We’ve used the phrase, “subject to income tax” several times in this article already. Even if you are subject to income tax because you are earning an income in a non-domicile state, you don’t have to pay income tax if your income is below that state’s income threshold. For example, Georgia has a $5,000 income threshold. If you are a non-resident who worked a total of 2 months in Georgia in a given year and earned $4,999 during that time, you are not liable for income tax and are not required to file a Georgia tax return. If you are under the income threshold, it doesn’t matter if you worked exclusively over the internet or spent all of your working hours in your customer’s (or employer’s) office building, there is no Georgia income tax liability. (2) TAX TIP: A good rule of thumb—if you will be spending more than two weeks in a tax state, if possible, schedule your work load and income-generating activities to keep your earnings under the state’s threshold. Save your higher income projects for when you are in no-tax states. Save your “vacation days” for when you are in tax states. (3)
Be sure to contact your tax advisor if you need help locating state income tax instructions, correctly identifying residency rules and income thresholds, or contacting state tax agents to get clarity about definitions of terms and rules.
Endnotes:
- Eight states do not have an individual income tax on earned income: Alaska, Nevada, Florida, South Dakota, Tennessee, Texas, Washington, and Wyoming.
- Georgia does have an exception to the $5,000 threshold. If the income you earned while working in Georgia (regardless of the amount) is more than 5% of your earnings for all services provided in any state during the entire year, then you are liable for Georgia income tax.
- Note that it does not matter if you receive payment for services provided after you left the state…the key is that you were performing services for gain or profit during your time in the tax state.
DISCLAIMER: The information and materials we share in this article are intended for reference only. The information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. We strongly encourage you to seek the advice of a professional to help you with your specific needs.
Author
Tim Ewing - Certified Public Accountant (CPA)
Tim is a certified public accountant (CPA) and long-time, full-time RVer. Tim has worked with small businesses for more than 30 years handling accounting, taxes and business development. On three different occasions, he has also started his own small businesses from scratch. His depth of experience, in both self-employment and operating small businesses, combined with his intimate familiarity with the needs of RVers, makes Tim a great resource for helping fellow RVers navigate the potential difficulties of working while traveling.
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RV Accounting Tips – Can you Deduct...
Continue ReadingTaxes and Accounting for Full-Time RVers Working on the Road
|By Lindsey Nubern and Adam Nubern|
DISCLAIMER: The information and materials we share in this article are intended for reference only. As the information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Therefore, we strongly encourage you to seek the advice of a professional to help you with your specific needs.
Phone and data plans are essential to operating mobile businesses from our RVs. Since we use our phone and data for business, can we deduct these monthly expenses on our taxes?
It depends on your situation. Let’s dig in deeper.
The IRS’ standard for a business deduction requires the item or service to be an ordinary and necessary expense for business.
This means if you use your phone and data to run your business, you should be able to deduct these expenses on your taxes. But, of course, there are parameters.
The IRS will only allow you to deduct the portion of your phone and data plan used to operate your business.
So, if you have a dedicated phone and data plan exclusively used for work, you can deduct your entire bill from your taxes.
However, most of us use our phone and data plans for both business and for personal use. We take a break and check in on social media during the day and stream Netflix while listening to campground crickets at night.
For those of us who use data for both work and play, calculating business deductions is way more complicated.
We can only deduct the percentage of our data plan used for business purposes.
How do you calculate the percentage? Track your usage.
How to Track Business vs. Personal Use
For every business deduction you claim on your taxes, you must have detailed records for proving the expenses for the deduction.
So, to deduct a portion of your data plan used for business, you must be able to prove the business usage.
Here are some ways of how you may be able to calculate your business deduction.
Data Usage:
Depending on your data provider, you may be able to view how much data you use each day. Take a look in your online account and see what information your provider shows for tracking your usage. You may be able to see how much data is used during business hours compared to after business hours.
If you can view this information, keep a record of how much data is used for business versus personal use. Once tax season arrives, only deduct the portion of your data plan used for business.
Phone Usage:
Again, depending on your provider, you may be able to track phone numbers and time spent on business phone calls versus personal calls on specific phone lines.
If you can view this information, keep a record of how much phone time is used for business versus personal use. Once tax season arrives, only deduct the portion of your phone plan used for business.
Use Averages:
Tracking your usage every month is tedious. Your unique work situation may allow you to use averages to ease the tracking burden.
If you have consistent work each month, track yourself for one month and apply that business percentage for each month of the year.
If you have predictable busy periods and slow periods during the year, track your business usage for each period. This gives you a different business percentage to apply to your monthly data bill throughout the year.
Whatever way you decide to track your usage, make sure to keep detailed records showing and explaining your calculations for your deduction claim.
Example Business Deduction Calculation
Here’s an example.
Kyle is a Certified Public Accountant (CPA) working from his RV full-time. He has predictable busy and slow seasons throughout the year. His busy season is four months during tax season from January to April. He works consistent hours during busy season from 8 AM to 8 PM six days a week. His slow season is May to December where he works five days a week Monday through Friday from 8 AM to 5 PM.
Kyle rarely uses his cell phone to call clients. He uses Google Hangout, Skype, or Facetime to call clients using his data plan. He also uses data to email clients, work on their accounting issues, and prepare their taxes. So, Kyle is only concerned about deducting a percentage of his data plan from his taxes.
With Kyle’s data plan provider, he pays $200 each month for a 20 GB package he uses for business and personal use.
Kyle tracks his business usage. He sees he uses an average of 8 GB of data per slow month from May to December. For his busy four months from January to April, he uses an average of 12 GB of data per month.
Here’s how Kyle calculates a business deduction for his data plan:
Slow months:
8 GB used for business / 20 GB plan = .4 = 40% of monthly bill used for business
$200 monthly bill x .4 = $80 of monthly bill used for business
40% or $80 of Kyle’s monthly data plan bill is used for business each slow month
Busy months:
12 GB used for business / 20 GB plan = .6 = 60 % of monthly bill used for business
$200 monthly bill x .6 = $120 of monthly bill used for business
60% or $120 of Kyle’s monthly data plan bill is used for business per busy month
Total deduction for slow months= 8 months x $80= $640
Total deduction for busy months= 4 months x $120= $480
Total Business Deduction Claimed= $640 + $480= $1,120
Kyle claims $1,120 for data used for business purposes for the year. He enters this amount on his tax forms.
Where to Claim Your Deduction?
Once you calculate your deduction amount, you enter the claim on your tax forms.
If you are self-employed, you enter the deduction on Schedule C, Line 25 entitled Utilities.
If you are an employee and you are itemizing your deductions, you enter the deduction on Schedule A, Line 21 entitled Unreimbursed Employee Expenses.
Other Deductions for Items and Services Used for both Business & Personal
You may use this rationale for calculating business deductions for other items you use for both work and personal use like hotspot purchases, computer purchases, cell phone purchases, and other expenses.
However, some items may fall into another category of tax reporting called Listed Property. We will explain how to report these items in another article when we address the complicated wonders of depreciation.
Remember to always keep detailed tracking records of your business versus personal usage to prove your deductions.
Work with a Professional CPA
Every full-time RVer’s situation is different and tax law can be confusing. Consult your professional CPA with your unique situation to get more clarity on what you can deduct from your taxes.
Need a CPA? Xscapers works with CPA Adam Nubern of Nuventure CPA. Connect with Adam here.
DISCLAIMER: The information and materials we share in this article are intended for reference only. As the information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Therefore, we strongly encourage you to seek the advice of a professional to help you with your specific needs.
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Working from Your RV in Multiple States...
Continue Reading| By Lindsey Nubern and Adam Nubern |
DISCLAIMER: The information and materials we share in this article are intended for reference only. As the information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Therefore, we strongly encourage you to seek the advice of a professional to help you with your specific needs.As full-time travelers, we’re living the dream! We’ve chosen a life of endless road trips fueled by the freedom to work as we go. One of the best perks of our lifestyle? We can change our office view at any time from the east coast to the west coast and all that’s in between.
However, come tax season, our travels and working in many states may create more tax returns to file.
Why? When we make income while working in states other than where we’re domiciled, we may be required to file additional tax returns such as a nonresident tax return. Each state we work in may have rules taxing nonresident’s income earned within their state borders.
So, which states do you need to complete a nonresident state income tax return? It depends.
It depends on your unique facts and circumstances and it depends on each state’s tax rules. Every state handles taxing nonresident income differently.
In this article, we’ll show you how to do the research so that you can determine which states you may need to complete a nonresident income tax return for.
How States Tax Nonresident Income Differently
Since each state approaches taxing nonresident income differently, it’s important to individually research each state you’ve traveled through and did work within.
Also, be prepared for rules to change from year-to-year. Currently, states are working to figure out how to tax people that perform services using the internet.
Here are keywords to use when searching online to help you find nonresident income tax rules for each state:
- State Name, e.g. “Georgia” or “California”
- Department of Revenue
- Not all states name their tax organization the Department of Revenue. It may be different like California’s Franchise Tax Board or New Jersey’s Division of Taxation.
- Nonresident return
- Source income
- Physically present
Once you find the tax rules for nonresidents, take your time and read them carefully.
As a forewarning, these rules can be confusing and difficult to understand. When in doubt, call the state’s tax department and ask about your specific situation to gain clarity and peace of mind.
The state may provide great news relieving you from completing an income tax return like Georgia did for Nubern. Or, they may affirm you must pay income taxes for performing services while in their state like California.
Georgia:
Nubern finds Georgia’s nonresident income tax return rules on the Georgia Department of Revenue’s (GDR) website here. https://dor.georgia.gov/filing-residents-nonresidents-part-year-residents-and-military-personnel
GDR’s website states:
Nubern reads the rules. The guidance states that those “who work in Georgia… and are required to file a Federal income tax return, are required to file a Georgia income tax return.”
Nubern feels he satisfies both statements, because he physically worked within Georgia and he is required to file a Federal income tax return.
But, he’s still uncertain, so Nubern calls the GDR directly to get clarity.
The GDR representative on the phone clarifies the state of Georgia’s definition of source income.
If you are not domiciled in Georgia, Georgia will want an income tax return if you have some form of source income from Georgia. Source income from Georgia includes wages, Georgia lottery winnings, income from flow through entities, rents, etc.
The GDR representative states that performing services through the internet while being physically present in Georgia is not defined as Georgia source income by the State of Georgia.
In conclusion, the GDR confirmed Nubern does not need to complete a Georgia nonresident income tax return.
Whew! What a relief!
However, Nubern would have never been able to determine this without making the phone call.
Whenever you are uncertain, call and talk to a state representative explaining your specific situation so they can give you an accurate answer.
Now onto California.
California:
Next, Nubern researches California’s tax rules. He searches online with the keywords “California nonresident income tax return.”
He finds the California Franchise Tax Board (CFTB) details their rules on taxing nonresidents here.
Researching California’s rules on their website is a step-by-step process. Together, we’ll walk through what the website explains below.
First, the CFTB defines who is a California resident. Then, they affirm Nubern’s tax status as a nonresident by stating, “A nonresident is any individual who is not a California resident.” You can see this below.
Second, you can see below that the CFTB defines how California taxes nonresidents “only on income from California sources.”
From this, Nubern’s new question is: What are California sources?
The CTFB website answers this question as we work down the page. We’re given clarity on what California defines as source income when referring to compensation and business income situations.
For folks receiving compensation through wages and salaries, California states source income is dictated by where the services are performed.
They explain the source of income doesn’t matter where your employer is located, when your payment is issued or your location when the payment is received.
In other words, California determines source income to be where you physically are while you are doing your income generating activity.
Nubern continues reading down the website’s page and finds the CFTB states how they will tax him as a self-employed individual with Business Income.
In this section, the CTFB states that any profession carried on within California borders is considered taxable California source income.
In conclusion, Nubern needs to complete a California nonresident income tax return.
The return will report the income he received while he was physically present in California and doing work that would result in any income for his business; even though he may have billed and received the income when he was outside California.
Lessons on Source Income
First, this example shows how states define source income in very unique ways.
Georgia and California use the same terminology of “source income”, but have different interpretations of the definition. The different interpretations show how Nubern’s same accounting services can be taxed differently by each state.
Second, it’s important to know that being physically present within a state, for even one day, while doing business could have an impact on your requirement to file a nonresident income tax return.
The other 48 states have their own nonresident tax rules and definitions to abide by.
Next, we’ll show you how you can research each state’s rules yourself.
How To Do the Research Yourself
Since each state approaches taxing nonresident income differently, it’s important to individually research each state you’ve traveled through and did work within.
Also, be prepared for rules to change from year-to-year. Currently, states are working to figure out how to tax people that perform services using the internet.
Here are keywords to use when searching online to help you find nonresident income tax rules for each state:
- State Name, e.g. “Georgia” or “California”
- Department of Revenue
- Not all states name their tax organization the Department of Revenue. It may be different like California’s Franchise Tax Board or New Jersey’s Division of Taxation.
- Nonresident return
- Source income
- Physically present
Once you find the tax rules for nonresidents, take your time and read them carefully.
As a forewarning, these rules can be confusing and difficult to understand. When in doubt, call the state’s tax department and ask about your specific situation to gain clarity and peace of mind.
The state may provide great news relieving you from completing an income tax return like Georgia did for Nubern. Or, they may affirm you must pay income taxes for performing services while in their state like California.
Tips to Prepare for Tax Season
Since each state handles taxing nonresidents differently, we have tips to help you be prepared for tax season.To determine if you need to complete a state income tax return, you may need to provide your facts of how many days you were physically present in a state and/or how much income you made while in a state.
To do this, maintain up-to-date records that include:
- A travel log
- Include the dates and locations of your travels.
- Find an example travel log here.
- Income reports that detail how much income you made in each state.
Keeping an accurate travel log and detailed income reports will save you time and stress of trying to remember a full-year’s worth of travels and income during tax season.
What are the Best States to Travel and Work In?
To avoid the complications of having to complete nonresident state income tax returns, you could strategically travel and work in states that don’t tax income.
Now, that’s a unique way to plan a road trip!
According to Bankrate.com, seven U.S. states currently do not tax income:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
Also, Tennessee and New Hampshire do not tax wages or business income, but they do tax dividend and interest income.
Work with a Professional CPA
Every full-time RVer’s situation is different and tax law can be confusing. Consult your professional CPA with your unique situation to get more clarity on which states you need to complete nonresident tax returns.
Need a CPA?
Xscapers works with CPA Adam Nubern of Nuventure CPA. Connect with Adam here.
DISCLAIMER: The information and materials we share in this article are intended for reference only. As the information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Therefore, we strongly encourage you to seek the advice of a professional to help you with your specific needs.
