Depending on where you’re logging in to work, you may have to navigate tax codes from different states or cities. And while working from home can save your employer from office expenses, the same can’t always be said for you and your tax bill. With so many people working from home, employers and state governments face new challenges regarding taxation, nexus, and employee benefits. Each state has its own approach to taxation, and depending on where you live and work, this tax obligation varies. Our Global Employer of Record (EoR) solution gives remote professionals the opportunity to work from over 185 countries. Seamlessly use our cloud-based Global Work Platform™ to sign contracts, manage invoices, submit timesheets, and get paid from anywhere in the world.
This isn’t common; only 17 states and the District of Columbia have local income taxes, ranging from 0.38% in San Francisco to 8.5% in DC. It’s also worth noting that remote work is not the same as working from home, remote employees can work from different locations that are not the employer’s office. In addition to keeping track of your home office expenses, make sure to pay attention to any money you spend on business travel, including the miles you put on your car for business activities. You can also deduct a percentage of your phone and internet bills based on how much you use them for business. “You don’t have to keep a detailed log [of your phone or internet usage] and figure out to the minute what is for business or personal use,” Cagan says. “But you have to have a general sense of how much of it really is business and don’t round up.”
Non-residents vs. residents regarding state taxes
Well, those who don’t comply with tax laws, might face some criminal charges and even face prison time. An idyllic scenario where a professional just grabs their bags and travels around the world, working where it feels the best. You may have moved your standing desk into the spare bedroom, but that doesn’t guarantee it’ll qualify for a home office space deduction. Your home workspace’s eligibility for a tax deduction depends on your employment status and how you use the space. Given that remote work taxes can get tricky, there are some common pitfalls you can avoid.
In addition to state taxes, remote workers are also required to pay federal taxes. They will typically file their federal tax return using Form 1040, which is the standard individual income tax return. They will also need to file a state tax return in the state where they are physically located while working.
How Does Working Remotely Affect Taxes? [2023 Guide]
A remote worker is an individual who works at least one day a month outside of their employer’s office. This can include individuals who work from home, as well as those who work from a different location. Teleworkers can be full-time and part-time employees, contract workers, freelancers, and self-employed individuals.
Fortunately, Mexico only collects tax on income sourced within the country, meaning this employee will save in foreign taxes. 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, how do taxes work for remote jobs 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. What adjustments need to be made will depend chiefly on state and local tax laws governing your new residence.
Working with a global partner like Velocity Global that is well-versed in international tax law allows you to travel abroad and stay compliant in multiple countries. While remote work taxes are overwhelming to understand, there are global HR solutions that streamline the employment and tax process overseas. Typically, employers should support workers’ efforts to accommodate court orders. Though they aren’t obligated to, many employers not only allow for time off, but also offer paid time off in these situations.
Remote workers can file their federal taxes electronically using the IRS e-file system or by mailing in a paper return. If they are unable to file their taxes on time, they can request an extension by filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. This rule indicates that you might not have to pay twice as long as your employer requests you to work in this remote location for the company’s convenience. Hybrid workers fit into many of the same categories as full-time remote employees.