Countless 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.
