Tax Rules for Out-of-State Remote Workers

How States Are Handling Remote Workers Differently

Across the country, people have faced a myriad of challenges while working remotely, from finding new ways to connect with coworkers to staying focused without an office environment. Now, people who have relocated temporarily and are working in new states could be up against a more unexpected remote-work hurdle: state income taxes.

Each state has different rules that apply to workers who do not live there permanently. These rules concern how long a person is working in the state, how much income they are earning, and where their real home, or domicile is. In the past, these rules have gained attention when states have taxed athletes and performers passing through for a day, like Michael Jordan and Alex Rodriguez. Now, many ordinary people across the country are confronting these regulations for the first time.

During this abnormal time of remote work, each state is taxing newcomers slightly differently. For those who are working in a new state currently, checking on that state’s rules now could save a surprise addition to next year’s tax bill.

Rules for Individual States

Currently, 13 states including Massachusetts, Pennsylvania, and Minnesota, have said they will not tax workers who have relocated there due to coronavirus. Other states, including Florida, Texas, and Washington State, do not have a state income tax. However, New York, California, and over twenty other states will tax people who are working remotely there.

New York, which was severely hit by the pandemic, is facing financial difficulties. Governor Andrew Cuomo has said that unless the Empire State receives federal assistance, it will have to tax everyone who relocated to the state during the pandemic, including out-of-state healthcare workers. New York will also likely tax people whose jobs are tied to a New York office, even if they have relocated.

Though some remote workers will face the hassle of paying income taxes in two states, others may end up saving on their tax bills. For example, Texas does not have a state income tax, so a person relocating there for the summer from a state like California, with high income taxes, could end up saving money.

Advice From Tax Attorneys

Chris Parker, a tax attorney at Moss Adams, advises workers who have relocated to states with lower income taxes to ask their employers to put their new location on paychecks and W-2 forms. This way, they can show that they were working in the new location for a significant period of time, and the move was not just a quick vacation.

Tax advisers also suggest that people working remotely should track the number of days they spend working in each state. Remote workers should make sure their state tax returns match this information.

Though some people are beginning to trickle back to the office, others may be working remotely for the foreseeable future. For people who are working in a new state, it’s worth doing some quick research about how that state is taxing remote workers.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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