'Work from anywhere' downside: potential double taxation from states. Here's what to know. (2024)

FAQs

'Work from anywhere' downside: potential double taxation from states. Here's what to know.? ›

Unless you live and work in a state with no income tax, you may get taxed twice on the same income. Some states offer a credit that can help offset part or all the taxes you must pay to the state where your employer is.

Where do I pay state taxes if I live in a different state than my employer? As a remote worker, you must pay tax on all your income to the state you live in (if your state has personal income tax). This is true no matter where your employer is located.

Double taxation is a disadvantage of a corporation because the corporation has to pay income taxes at twice the rate applied to partnerships.

If you permanently moved to another state, you'll need to file two state returns: one for each state you lived in during the tax year (assuming both states charge income tax). You may be able to claim part-year residence, which will allow you to divide your income between the two states instead of paying taxes twice.

You may have to file more than one state income tax return if you have income from, or business interests in, other states. Here are some examples: You are an S corporation shareholder and the corporation does most of its business in a state other than the state where you live.

So as a remote worker, you pay taxes to the country in which you reside. If you're an employee, your employer or EOR should deduct taxes from your paycheck according to local law. If you're a contractor, you are responsible for paying your own taxes in the country you reside.

Are There Tax Deductions for Remote Workers? Since the 2018 tax reform, generally only self-employed people can claim tax deductions for remote work. Some exceptions to this classification include performing arts, government officials, and people who are in the military reserve forces.

Opponents of double taxation on corporate earnings contend that the practice is both unfair and inefficient, since it treats corporate income differently than other forms of income and encourages companies to finance themselves with debt, which is tax deductible, and to retain profits rather than pass them on to ...

Double taxation can happen in C corporations, where owners or shareholders get taxed separately. Other businesses pass income down to individuals, for them to pay personal tax rates that are levied once. In 2022, the federal income tax rate on corporate profits was 21%.

You can avoid double taxation by keeping profits in the business rather than distributing it to shareholders as dividends. If shareholders don't receive dividends, they're not taxed on them, so the profits are only taxed at the corporate rate.

What if an employee works in two different states? ›

If an employee works in multiple states that do not have reciprocity with the employee's state of residence, then the laws and requirements of both states must be considered. The employer might need to withhold state income tax for both the work state and the state of residency.

Contrary to popular belief, there's nothing in the U.S. Constitution or federal law that prohibits multiple states from collecting tax on the same income. Although many states provide tax credits to prevent double taxation, those credits are sometimes unavailable.

If both states collect income taxes and don't have a reciprocity agreement, you'll have to pay taxes on your earnings in both states: First, file a nonresident return for the state where you work. You'll need information from this return to properly file your return in your home state.

Put simply, state tax reciprocity means you can live in one state and work in another without being taxed in your work state. Instead, you only pay taxes to the state you live in. If no relevant state tax reciprocity agreement exists between your residence state and work state, you may need to file taxes in both.

State Tax Obligations

A worker may have tax obligations in any state where they reside and possibly the state where their employer's worksite is located. A permanent remote worker will file their personal income taxes in their state of residence, whether they are a W-2 employee or a 1099-NEC independent contractor.

Key Takeaways. Double taxation refers to income tax being paid twice on the same source of income. This can occur when income is taxed at both the corporate level and the personal level, as in the case of stock dividends. Double taxation also refers to the same income being taxed by two different countries.

That means they are subject to the same federal and state laws regarding wages, overtime, breaks, and paid time off. If you work for an employer based in a different state, your rights as a remote worker are generally determined by the laws in the state where you reside.

New York is one of the few states that DO tax remote workers in certain instances. They have what is known as the Convenience of the Employer Rule. So if your employer requires you to work from home then you then it is not taxable to NY.

Key Takeaways. Employees who work from home can no longer claim tax deductions for their unreimbursed employee expenses or home office costs on their federal tax return. Prior to the 2018 tax reform, employees could claim these expenses as an itemized deduction.

Relocating while working remotely typically seems straightforward on the surface. After all, you can usually do your job from any location with a reliable internet connection. However, the reality of the situation is a bit more complex, particularly if you want to safeguard your current job.