Worked Remotely in 2021? Here’s What You Need to Know About Your Taxes

For digital nomads who work overseas, you can also use remote work as an opportunity to travel and expand your horizons. You can have fantastic experiences as a remote worker; just know your taxes or have your employer sort it out for you. Search the two states and “reciprocity rule” to determine whether they work together.

Otherwise, state governments consider them permanent residents of the other state. Unlike other remote workers, these commuter employees live in another state but work in the same state as your organization. So, if you work remotely from your home in Florida, you won’t need to file a resident tax return. In fact, you probably won’t need to file any state tax returns, unless your W-2 form indicates another state’s tax withholding. On this non-resident return, you’ll report only the information  listed on that W-2 form. Typically, you’ll pay taxes in the state you live in (unless that state doesn’t have income taxes).

Full-time remote employees

U.S. citizen high earners (above $100,000 per year) may owe U.S. taxes even while working abroad, though. Either way, U.S. citizens working overseas should still plan to file tax returns, even if they don’t owe anything. However, American citizens working for American companies often still need to file tax returns, even if they don’t owe anything to the United States government. Furthermore, U.S. citizens who earn above a certain threshold—over $100,000 a year—may be required to pay taxes to the United States government even if they are earned money outside the country.

Most states offer a tax credit that offsets your liability if you’re not a resident there. But that credit may not fully offset the amount you need to pay to the second state you lived or worked in. It all depends on the states in question and what their respective tax rates are.

Do independent contractors that work remotely have to pay taxes?

In many states, having an employee or any official presence in that location triggers a sales tax nexus for your organization. Local tax jurisdictions, such as counties and cities, further complicate this. Rather than trying to figure out what you owe, we’ll do all your federal and state calculations for you at once. As the name suggests, the simplified option makes calculating your deduction amount easy. You can deduct $5 per square foot of office space for up to 300 square feet (or $1,500).

The vital thing to know is that remote workers can easily avoid double taxation if they live in one state and work in the other. In this guide, we’ll explain how taxes work if you work remotely and show you how to increase your tax refund. Remote work tax rules depend on a number of factors, especially employee classification (independent contractor vs. full-time employees). Employees normally receive a how do taxes work for remote jobs tax return, while contractors will end up owing money if they didn’t make payments on their own ahead of tax day. Suppose your temporarily remote employee typically works in the same state or location as your organization but currently works remotely in another state. For a state to consider someone a temporary worker, you must expect the temporary remote worker to return to their permanent location.

Federal Taxes for Remote Workers

With so many people working from home, employers and state governments face new challenges regarding taxation, nexus, and employee benefits. Each state has its own approach to taxation, and depending on where you live and work, this tax obligation varies. Depending on your specific tax situation, you may need to file two state tax returns; a resident return and a non-resident return. Since the start of the Covid-19 pandemic, there has been a dramatic increase in remote and hybrid work.

• This can cause a host of problems for workers and businesses if they are not careful.
• People who work from home (or nomadically) don’t always have access to the information they need.
• For regular W-2 employees, working from home may have a minimal impact on your taxes, but there are plenty of situations where it can get complicated.
• Unless you specifically require your out-of-state workers to be remote in their state, you may have to withhold taxes for your state.
• Reciprocal agreements are tax arrangements where taxpayers often file for exemption of state income tax for one state, avoiding double taxation.