The flexibility with working remote and traveling can be attractive, but it is important to be aware of the tax implications associated with it.
Starting off, it is important to understand which state you are a resident of. A resident state is a state you actually live in, and maintain a personal residence. Most states will generally consider you as a resident if you spend 183 or more days in that state. A non-resident state is a state you haven’t lived in for the past year, but have earned income there. If a non-resident state is included on a W-2 form, you will most likely have to file a non-resident state tax return, which could have additional tax on it as well. This all depends on the state, as laws vary on a state-to-state basis.
There are also some states that don’t require income tax to be paid on earnings made there. These states include:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Because these states have no income tax to start with, if you do work remotely for a period of time from one of these states you will not have to worry about any additional state taxes from the state when it comes to filing. This is especially beneficial for those who head to Florida for the winter months, as it is a common destination to travel to, and provides more incentive to work from there remotely as opposed to a state that could tax you on your remote earnings.
Most states assert the right to tax someone’s income dependent on their physical presence generating that income within the states’ borders. However, some states are more stringent with their tax laws, and may even cause for a potential double taxation scenario to occur. Your chances of double taxation increase if your employer is based in one of these states:
- Connecticut
- Delaware
- Nebraska
- New York
- Pennsylvania
These states have what is known as a “convenience rule”, which means that a state has the right to impose an income tax on wages you earned while working for an employer based in that state, even if the work is done remotely. If your employer is in a convenience rule state, you can potentially owe taxes both in that state and in the other state on that same income. There can be an exception to this rule though, and that is if your employer itself directs you to work out of state for its own convenience. This could be if they needed you to work at another branch or office for a period of time. Because it is required for you to reside there for work purposes, and not for your own personal reasons, it is not doubly taxed. In addition, depending on the state, some will yield to the state imposing the convenience rule, or may have a type of credit agreement between the two states to help avoid double taxation as well.
Making the decision to work remotely in another state can have various tax consequences depending on what states are involved. It is important to do your own research on what the law in place is for your intended state, and to reach out to a tax professional for any questions.
Written by, Sarah Paquette, Staff Accountant