Still working remotely? Your 2021 taxes may be more complicated

Whether you work for a small mom-and-pop or a large, multistate company, being a remote worker can add an extra layer of difficulty to your income tax filing. To avoid this, it’s important to notify your job where you’re living so it can withhold tax from the correct state. It’s also important to consult a tax professional, since the tax situation — as well as what it takes to be a resident of that particular state — varies drastically by state and is far from intuitive. The issue of paying for remote workers’ expenses, whether because of legal obligations or as a way to attract and keep talent in a tight labor market, isn’t going away as the pandemic recedes. Also, should you perform work onsite with your employer, you could again be subject to tax liability in the employer’s state. Your tax liability could be triggered by the amount of time worked or income earned.

• Extensive record-keeping, receipt management may very well be worth the time and effort.
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• Typically, when this happens, the state where the person lives would award a tax credit to offset taxes in the state where that person works.
• If you spent most of the year living out of a van or bouncing between Airbnbs, you probably want professional help with your taxes.
• If they live in a convenience rule state, they often need to pay taxes to their employer’s state or file for exemption via a reciprocal agreement.

“You want to make sure that if ever you get audited… you have a reasonable defense for yourself,” she says. Meanwhile, some states — 16 of them, according to the institute — have reciprocal agreements with one another. Get this delivered to your inbox, and more info about our products and services.

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This article explains how taxes work for remote employees, including the different types of remote workers, which states have unique tax circumstances, and how remote work affects employee benefits. how do taxes work for remote jobs However, they have a state unemployment insurance tax, meaning employers don’t have to withhold state income tax. Still, they must make state unemployment withholdings for Florida remote workers.

Although the issues themselves are not new, the impact of those issues is now much greater since more individuals are working remotely than ever before. Thus, Telebright is an important reminder of the position taxing authorities can take, as this column next delves deeper into the issues raised by a growing remote workforce. Moreover, TeleBright was already withholding and paying New Jersey state income tax on the employee’s salary — thus, the additional effort https://remotemode.net/ of calculating and paying the CBT should not constitute an undue burden. Typically, the rule is that employees pay taxes based on the state where they reside. However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states. With so many workers going remote and staying that way, their approach to doing taxes may be changing.

Ask HR: Where Do Remote Employees Pay Taxes?

Read on to explore essential tax considerations for remote employees, like how and where they pay taxes. As remote work becomes a popular model, employees and employers must better understand how this type of employment works when paying taxes. After all, misunderstandings at tax time often result in severe financial penalties for employers and employees alike. All of these apportionment changes can first be expected to affect quarterly financial statement reporting and estimated payments, then ultimately the preparation and filing of state and local income and franchise tax returns. While Telebright involved New Jersey law, the issue raised is not unique to New Jersey. In fact, the majority of states take the position that a telecommuting employee creates sufficient nexus to subject an employer to the state’s business taxes.