Hidden costs for work-from-home employees leaving California Los Angeles Times

As 1099 contractors aren’t employees, they must pay their taxes as an independent business to their state of residence (if working remotely). However, when employees work remotely from another state, things can get complicated. Generally, the state where your employee lives and works is the one that taxes them. You should speak with the labor and unemployment agencies of each state your employees live and work in to ensure you follow all the proper tax procedures and withholdings. According to WFH Research1, in August 2023, 13% of full-time employees were fully remote, and 30% worked a hybrid schedule.

The same goes for time off for bereavement and for parents to attend their children’s school activities, though generally not paid. There’s also reimbursement for remote employees for their work-related expenses. First, make a list of any states where you worked remotely, even if it was for a brief period of time, accountants suggest. If you didn’t keep close track, try to approximate the number of days worked in each state.

How could my company’s state claim me as a resident if I don’t live there?

Thankfully, only a handful of states—Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania—use the Convenience of Employer rule to at least some how do taxes work for remote jobs degree. Verify your employer’s decision is consistent with its written policy and procedure. If you are still uncertain, reach out to your HR department for clarification.

This is because taxable benefits are additional income and must appear on an employee’s Form W-2. This affects the total amount of taxable wages and withholdings for your employees’ individual income tax. If you have employees who recently moved to a new state and worked remotely, they’ll need to establish a new domicile, or permanent residence, to avoid being taxed in both their current and former states. Many states will audit former residents to determine if they’re no longer a resident. The more evidence your employees have that they live in their new state, the harder it is for their previous state to claim them as a resident for tax purposes.

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For example, suppose your employee works for your Utah-based organization but lives and works from home in Oregon. In that case, you must withhold all state and local income taxes for Oregon from their pay and benefits. You will also have to pay any required unemployment taxes and special taxes for that location. In a traditional, in-person work environment where your employees live and work in the same state as your organization, there’s less uncertainty to navigate. You simply withhold state and federal personal income taxes, if applicable in your area, and pay any required payroll taxes, like FUTA. Some states have reciprocal agreements that enable remote workers to pay taxes in just one state and avoid double taxation.