Ask HR: Where Do Remote Employees Pay Taxes?

If you offer taxable employee benefits such as employee stipends, you’ll also need to report the additional taxable income to the states that require it. This is because taxable benefits are considered additional income and must be reported on an employee’s Form W-2. This affects the total amount of taxable wages and withholdings for your employees’ individual income tax. Unlike other remote workers, these commuter employees live in another state but work in the same state as your organization.

  • Your employee might need to work in another state temporarily while they finish up selling their home.
  • Otherwise, the only state income tax these remote workers need to pay is their state of residence.
  • U.S. citizen high earners (above $100,000 per year) may owe U.S. taxes even while working abroad, though.
  • About three-quarters of respondents in the survey said they had fired employees based on findings from their tracking software.
  • We’re lucky that technology and disruption in the finance industry have created a world in which we can move money around the globe in minutes and often at a very low cost.
  • However, all of this is predicated on the idea that the employer can both track the remote work location of all its employees and successfully limit their mobility to certain states.

Nine states also require minimum paid rest periods for adult employees in the private sector. The state agency that administers unemployment taxes is different from the agency that pays unemployment benefits. Here are some new laws affecting your business and your employees working from home, and some continuing to work remotely throughout 2021. 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.

Free Credit Score

For example, John works for a Texas company, but he lives in Seattle, Washington. Washington has various state tax withholdings, and Seattle has various local tax withholdings. John’s company has to withhold state and local income taxes for Washington and Seattle from his pay. Navigating the waters of international tax laws is tricky for companies and remote workers. US citizens who live abroad and work for a company based in the United States only have to pay taxes in their country of residence. The only difficulty companies that hire remote workers might face is that they may have to pay different local taxes for their remote employees depending on their place of residence.

“You want to make sure that if ever you get audited… you have a reasonable defense for yourself,” she says. “As a taxpayer, you can’t just assume the state isn’t going to go after you,” she said. Meanwhile, some states — 16 of them, according to the institute — have reciprocal agreements with one another.

How Social Security taxes work

As remote work becomes a popular model, employees and employers must better understand how this type of employment works when paying taxes. After all, misunderstandings at tax time often result in severe financial penalties for employers and employees alike. Typically, the rule is that employees pay taxes based on the state where they reside. However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states. With so many workers going remote and staying that way, their approach to doing taxes may be changing. Whether you work for a small mom-and-pop or a large, multistate company, being a remote worker can add an extra layer of difficulty to your income tax filing.

  • That issue is the subject of multiple lawsuits and could go before an appeals court in early 2024.
  • Instead of having to wait until the end of the financial year to claim tax deductions, the amount gets offset from your taxable income up-front.
  • You can get the credits quickly by deferring your employer part of Social Security taxes, reported on Form 941, the quarterly wage and tax report.
  • However, this isn’t as simple as withholding monetary amounts from local employee paychecks.
  • A report this year from the workplace-messaging company Slack found a lack of agreement about measuring productivity between employees and executives.

Colorado, for example, requires proof of non-resident status, while other states (those who have state income taxes) may have more lenient regulations. If you have employees working abroad, you must withhold U.S. income tax from their pay unless you are required by foreign law to withhold foreign income tax. Some employees may qualify for a foreign earned income exclusion if they meet certain tests.

A last word on working remotely and paying taxes

Offering an employee stipend is one of the easiest ways employers can cover the cost of remote work while remaining compliant with state tax laws. It’s also worth noting that you can continue paying taxes in your home state if you temporarily work from another state. Remember that all states limit how long nonresidents can work before becoming eligible for state income taxation. Statutory tax credits and negotiated incentives are often tied to the creation or retention of jobs within a designated geographic area (state, locality, enterprise zone, etc.).

How Remote Work Taxes Are Paid

Currently, W-2 employees can’t deduct home office expenses, but independent contractors or anyone who is self-employed can deduct the costs of having a dedicated workspace at home. Taxes can be confusing and working remotely has the potential to add one more complication to the mix. So if you’re not quite sure how to handle your taxes this year, you may be able to save money and have greater peace of mind if you work with a tax professional.

US senator Mitt Romney is retiring but his feud with Donald Trump will live on

These requirements range anywhere from $50,000 to $500,000, depending on state laws. From there, you’ll need to familiarize yourself with state guidelines, income tax tables, and SUTA tables. Consider partnering with a payroll and HR provider who has tax professionals on staff. Understanding how to navigate payroll taxes for employees working out of state will help your company remain consistent and compliant. If employees perform most of their work in-state, you report wages and pay regular unemployment rates to that state, regardless of where the temporary work occurs. In a March survey of 1,000 US business leaders, 96% of respondents working at organizations with a primarily remote or hybrid workforce said their firms used some form of employee-monitoring software.

Payscale offers location-based pay solutions that untangle all the complexities of your tax situation. Our compensation plans handle the specifics of your tax requirements, down to the details of your locality. A recent Harris Poll showed that many people are “not very” familiar with the tax laws in their state of residency or the state where their employer is located. Taking time to read up on the tax implications of remote work will help to stave off frustrating hiccups down the road. One way to ensure that you remain compliant in these states while benefiting your entire remote team is to offer a remote work employee stipend.

Nothing can give your business the same advantage as having access to global talent. Even if they’re based in the same country as you, you might have to follow specific rules if they live and work in a different state or region, as is the case for the US. Additionally, TransferMate integrates with the most popular accounting and payroll software, so it’s even easier and faster to pay your remote team with it.

companies hiring remote workers entry level