You might be asking, “If I work remotely, where do I pay taxes?” To help you answer this question, we’ve created a guide about how remote work functions for the many types of remote workers. Without an EOR, most U.S. companies choose to treat international employees as independent contractors. This can cause a host of problems for workers and businesses if they are not careful. People who work as contractors must generally be free from restrictions about when they work, how they receive payments, the rates they charge, and whether they can work for multiple companies.

However, this differs based on the states where your employees live and where your organization is located. Each state has its own rules regarding how long an employee can work in that state as a nonresident or part-year resident without owing income tax. In some cases, though, an employee may need to file non-resident tax returns. Suppose your temporarily remote employee typically works in the same state or location as your organization but is currently working remotely in another state.

Contractors, freelancers and the self-employed should track all work-related expenses

In fact, 77% of remote employees claim to be more productive when working from home, and a staggering 99% of workers report that they would like to continue remote work in some capacity going forward. The COVID-19 pandemic has forced many employees out of offices and other physical worksites and into their homes. Now that the transition to remote work has been forced upon companies, many employers and employees are realizing how rewarding and efficient it can how do taxes work for remote jobs actually be. If you have a side hustle, freelance gig, business venture or are otherwise an independent contractor (i.e. you receive a 1099 form for your income), you can deduct business expenses. With the regular method, you’ll need to keep records of your eligible home office-related expenses such as homeowners insurance, mortgage interest, utilities and repairs. You’ll be able to deduct a percentage of eligible expenses based on the size of your workspace.

• If it is expected that you will return to your employer’s worksite, you are probably a temporary remote worker.
• Here’s what you need to know about out-of-state remote work and your taxes.
• Even before the COVID-19 pandemic we worked with thousands of out-of-state remote workers, helping them minimize their tax liability and avoid trouble with either state governments or the IRS.
• Further, just because you live in one of these states doesn’t mean you don’t have to file a tax return in the state in which you live.
• Remote work allows you to work from anywhere in the world, so many remote workers have become Digital Nomads, working in several countries throughout the year.

For example, Arizona requires a tax return after 60 days of working in the state. If you have a telecommuting employee in a different state than your location or employees in multiple states, you must withhold income taxes for the state they live and work in. You’ll pay unemployment taxes and report their income to the states where they live, not your state. Unlike other remote workers, these commuter employees live in another state but work in the same state as your organization. In a traditional, in-person work environment where your employees live and work in the same state as your organization, there is less uncertainty to navigate.

For Workers With a W-2

At S.H. Block Tax Services, we have extensive experience helping individuals with nonresident returns and other complex tax situations. Even before the COVID-19 pandemic we worked with thousands of out-of-state remote workers, helping them minimize their tax liability and avoid trouble with either state governments or the IRS. Thankfully, in most instances, just because you have to file taxes in two different states doesn’t mean that you have to pay twice as much. Usually, a remote out-of-state worker can receive a tax credit from their home state to avoid being double taxed. However, that tax credit is usually limited to the relevant state’s income tax rate. As a remote worker, your employer will deduct and remit taxes for you in the province where they are domiciled, not necessarily where you live.

Keep in mind that this is not just about travelling and experiencing different cultures and having a broader professional experience and background. There are legal obligations to follow to avoid some negative (and expensive) consequences. Depending on the country a digital nomad is moving to, it’s important to be properly informed of the applicable rules and to make sure to comply with them. Yes, everyone knows about them and complies with them (or should do so!), but it probably isn’t one’s favourite subject!

Possible Deductions for Remote Workers

There’s no doubt that remote work has gained momentum over the last few years. Many companies are permanently rethinking their approach to working outside the office as employees express interest in the perks of working from home. As such, taxpayers need to adapt to this new paradigm and think smarter about how the remote work model affects their finances, especially their tax filings. Most especially, you need to consider the tax implications of the state in which you live and the state in which you work. 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.

If you’re an educator working from home, you could receive a $250 deduction for expenses such as computer equipment. “Per the IRS, teachers can deduct un-reimbursed costs for computer equipment (and related services), software, supplementary materials, and supplies,” Ng explains. If you are self-employed and your home is your principal place of business, you can qualify for a home office deduction. Fortunately, this is where tax treaties and different types of tax relief can come into play, especially for U.S. and U.K. Traveling to another country and working for an extended amount of time seems like a simple process, but it requires some planning and almost always a visa. Professionals around the world want to work remotely, and it’s easy to understand why.