If you’re among the workers who plan to continue working remotely, you may want to evaluate your 2021 tax situation. Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither remote work taxes members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item. Estimated quarterly tax payments are when you take out a set amount of taxes based on your income for each quarter and send this payment over to the IRS.

How Remote Work Taxes Are Paid

Massachusetts workers performing services outside Massachusetts due solely to the state of emergency are treated as though they remained in Massachusetts for tax purposes. Massachusetts will also award a tax credit for workers who started working in the state of Massachusetts as a result of the state of emergency, although they continue to incur tax obligations in another state. Also, if you are an independent contractor for your company — you do not receive a W-2, but rather, say, a Form 1099 — you are considered self-employed and taxed as such.

Don’t Have a Dedicated Tax Compliance Department?

Other states’ thresholds kick in faster, including 23 that want you to pony up on day one. And still other states have a wage-based threshold for taxation, while nine states have no income tax at all. For example, some states let nonresidents work there for more than 30 days without a withholding requirement, including Arizona and Hawaii, which let you be there for up to 60 days. Most people surveyed (72%) were either “very” or “not at all” familiar with their state’s tax requirements for remote work. “If you spent a significant time working out of another state in the last year, you very likely will have an income tax liability there,” said Jared Walczak, vice president of state projects for the Tax Foundation. If you still feel confused or overwhelmed after reading this, you may want to reach out to a professional accountant who specializes in remote workers, so they can better guide you. Now, if you’re an independent contractor or 1099, you must make estimated quarterly tax payments to the IRS, as mentioned earlier, on top of filing your annual return.

States have different rules for how long someone must be there before they’re considered a resident for tax purposes. Their pricing is structured differently, and you can essentially build a package that is tailored to your company’s needs. Their base plan is $8 per month per employee, with an additional $6 per month per employee for payroll services. The actual paying of your international workers doesn’t have to be difficult and many of the payment options for local workers, like bank wires, can be used for international workers too. If, for example, your company wanted to employ a full-time worker that lived in another country you would have to open a legal branch of the company in that country. The state where you permanently reside is called your “domicile,” but you can also be a resident of a state if you spend a certain amount of time there.

Personal Income Tax and Employer Withholding

If your employee works in the same state your company is registered in, you’ll withhold state income taxes and pay state unemployment insurance tax in this state. Businesses must stay up-to-date on changes in tax laws in response to the increasing popularity of remote work. They have to know where or if they need to withhold state and local income taxes based on the previously mentioned factors. The United States has complex taxation rules that require individuals and businesses to pay a variety of taxes at the federal and state level. In addition, different factors (e.g., duration, location, and reason) can impact what remote work taxes must be paid – and to which state. In this section, we discuss remote work taxes that American remote employees or contractors working out of state or out of the country may incur – and how this could impact the companies that employ them. For remote workers in the U.S., physical location remains the determining factor for which taxes workers pay.

However, it’s important to understand whether the two states have entered into a reciprocal agreement. In such a case, the employer withholds only in the employee’s state of residence. A reciprocal agreement eliminates the employee’s obligation to file for a credit for taxes paid to another state. It is worth noting that many states do not provide individual income tax reciprocity. In general, personal income taxes must be filed in the state where the taxpayer’s principal residence is located. When COVID-19 began, no one envisioned how long remote work would last or if people would want to continue working remotely permanently.

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