Remote work tax implications

Remote work offers flexibility, but tax complexities can dampen the enthusiasm.

In the U.S. last year, 13% of full-time employees worked remotely, and 28% adopted hybrid models. Many found themselves working across state lines, adding layers of complexity to their tax situations. Millions now face potential double taxation issues this tax season.

Taxation of Income:
Typically, income is taxed based on where you live and work. If these locations align—as with most remote and in-person jobs—you’re taxed accordingly. However, if you work and live in different states, you might face double taxation.

Most states offer tax credits for income taxed elsewhere, but they won’t surpass what you owe in your home state. So, while you won’t be double taxed, working in a state with higher taxes could mean paying more overall.

Double Taxation Scenarios:
Five states apply the “convenience of the employer” rule, taxing remote workers based on the employer’s location, even if they never work there. This could lead to double taxation if your home state also taxes you.

For instance, if your employer is in New York but you work remotely from California, both states may tax your income.

Crossing State Lines:
For those commuting across state borders, tax calculations can be tricky. Splitting work days between states means owing taxes proportional to the time worked in each state.

State reciprocity agreements offer relief, taxing cross-border workers only in their residential state. With 30 agreements across 16 states and D.C., these arrangements benefit both workers and states, simplifying administration and reducing compliance costs.

As remote and hybrid work reshape the economy, state tax policies must evolve accordingly.