Tax Law Issues Related to Working Remotely in a Different State COVID-19 Legal Center

If you’re looking to add more remote workers to your team, this is one area you’ll need to get right before you start the hiring process. The no-compliance with the local tax laws might result in a ban from the country, at least until you pay what you owe. Another group that should pay attention during tax season are those who moved from states with high-income taxes to those with low or zero-income taxes—and are trying to avoid paying state income tax. “If you want to move there for a couple of months just to lower your taxes, that’s probably not going to happen,” Taylor says.

• In addition, we provide transaction advisory, business valuations, SOC 2 examinations, IT compliance, and client accounting advisory services .
• But the freedom that comes with remote work can also cause confusion when it comes to your taxes.
• Foreigners must apply for this temporary visa and must attach a work permit to allow them to stay there for a period of six months and perform paid activities.
• According to McKinsey’s American Opportunity Survey, 58% of employees work from home at least once a week, while 35% work remotely full-time.
• Remote workers in these states who do not perform work in other states only have to file federal tax returns.
• In June of 2020, 42% of the U.S. labor force was working from home full time.

Our experienced tax and human capital professionals and innovative technology solutions can support you. Together, we can align your strategy, policy, and operations to address the potential talent and tax implications of hybrid and remote work. Taxes make up just one part of the enormously complex equation of working and hiring internationally. Workers must tackle issues like visas, culture shock, and language barriers. Businesses, meanwhile, must contend with issues of payroll, benefits, and compliance. The state where you permanently reside is called your “domicile,” but you can also be a resident of a state if you spend a certain amount of time there.

Tax Guide 2023

You might be asking, “If I work remotely, where do I pay taxes?” To help you answer this question, we’ve created a guide about how remote work functions for the many types of remote workers. Connecticut didn’t have a convenience rule, historically, so if we had a telecommuter that paid tax in New York, Connecticut wasn’t giving their residents a credit for that. That caused lots of challenges for employers and employees and led to a taxing remote workers lot of the old controversy. This ended up getting fixed by Connecticut in 2019, but it still could have come up in a lot of states. Things get even more complicated when your current employer withholds an employee’s tax and pays it to their country’s tax authority. In that case, you will be paying personal income tax in the country you are operating from , tax in the country you are residing in , and also tax in your home country .

While researching what you need to do can help, taking off liability requirements can keep you on the good side of a country’s tax laws. Always do some extra research on those local requirements to ensure that you’re paying your taxes correctly. You might find exemptions you didn’t know you qualified for otherwise. Do we think other states are going to adopt a convenience type rule or a telecommuting rule? That’s a state where maybe lots of people will or have gone to hang out and work remotely.

Deloitte Tax Transformation Trends

From a federal standpoint, the United States tax system is relatively straightforward. However, if you are a remote worker who operates in multiple states, things can get tricky. There may be some states that have an incentive to try and protect their tax base. That requires us meeting a laundry list of factors, but if we can meet those factors, then voila, we’ve fixed the issue. A normal audit would come a year or so after someone files a tax return.

Others, like Kentucky, have said they’ll consider the impact on taxpayers working from home on a case-by-case basis. Another issue that happens is when your location within the U.S. is unclear, which can sometimes result in multiple states vying for the right to tax the same portion of your income — also called residency audits. This is another form of double taxation, and it’s happening more and more, especially in states where legislators have caught on to the fact that people tend to leave seasonally and work portions of the year elsewhere. For some, the indefinite possibility of telecommuting turned into a unique travel opportunity or even a chance to relocate to their favorite rural destination while maintaining a big-city job. And although this might have changed things for the better for some workers, there are still a few things to consider in this new world of remote work — like the tax implications. You can try services like Remote, which help you hire internationally and manage payroll, benefits, taxes, and compliance.

You might be creating a nexus

As a 501 nonprofit, we depend on the generosity of individuals like you. The CPA Journal is a publication of the New York State Society of CPAs, and is internationally recognized as an outstanding, technical-refereed publication for accounting practitioners, educators, and other financial professionals all https://remotemode.net/ over the globe. Edited by CPAs for CPAs, it aims to provide accounting and other financial professionals with the information and analysis they need to succeed in today’s business environment. The sidebar Sourcing Rules by State contains a brief review of states that have issued guidance on this topic.