Blog

Do I Have to Pay California Taxes if I Work Remotely?

For foreign nationals working remotely for U.S. companies, tax obligations depend on their country’s tax laws and any tax treaties in place with the United States. Generally, these remote workers do not owe U.S. income taxes if they are not U.S. residents, although they must adhere to local tax laws in their country of residence. To avoid double taxation, remote workers can use strategies such as claiming foreign tax credits, using tax treaties, and taking advantage of reciprocal agreements between states or countries. Establishing tax residency in one jurisdiction, carefully planning the location and duration of remote work, and keeping detailed records of income and taxes paid are also crucial.

According to the so-called convenience rule, employers must report taxes to the state where their organization is based if its employees work remotely out of convenience. You’ll have to rent or buy a property, update your mailing address or obtain a new driving license to prove you’re no longer eligible to how does remote work get taxed pay income taxes in another state. For instance, if you live in West Virginia, Pennsylvania, Washington DC, or Virginia and work in Maryland, you’ll only have to pay state taxes in your home state. You can file a nonresident state tax return to avoid being taxed on the same income twice. Failure to report these properly can result in underreported wages, tax penalties, and compliance issues—especially in states with strict income reporting rules for remote employees.

Digital nomad taxes may appear like a further complication to your remote work taxes. But rest-assured, they work almost exactly the same as if you were living in the United States. Despite some of the information you’ll gather online, you do not need to pay taxes when you work remotely in another country in almost all cases. Moreover, the 51 countries and territories that offer a digital nomad visa waive any remote work taxes for digital nomads, eliminating any red tape or uneasiness you may have.

What are the benefits of telework?

This can free up your team to focus on strategic initiatives that drive growth. They can be especially helpful for US-based businesses interested in hiring employees abroad. According to the Bureau of Labor Statistics, one in five employees in America works remotely. For some, that means a home office halfway around the world from company headquarters. For others, it means telecommuting for half the week across multiple states. Hiring remote team members offers several benefits, including access to a wider talent pool, increased diversity, and potential cost savings on office space and resources.

Working remotely in a different state than your employer? Here’s what that means for your taxes

For example, parents with young children or people with disabilities may benefit from telework flexibilities. Today’s WatchBlog post looks at our new report on private sector employee and employer views on working from home. Best of all, these systems are typically understood and accepted by employees—some even require action by the employee. All of these potential pitfalls can have an impact on an employee’s trust in leadership. Inconsistent data gathering leads to inconsistent decision-making—adding complexity to fair and equitable remote and hybrid work strategies. Additional compliance risks surface when remote work goes cross-border internationally.

Additionally, credits such as the Child and Dependent Care Credit or the Earned Income Tax Credit may be affected by the remote work status. It’s important to understand which deductions and credits are available to you and how to claim them in order to maximize your savings. Hence, understanding your tax obligations is crucial whether you’re a freelancer or employed as a remote worker in the US.

Current Legal Analysis

And if you worked remotely from a state for more than 183 days last year, you may even be characterized as a resident for tax purposes. Another strategy is to keep all of your receipts and invoices for your expenses. This will make it easier for you to verify your expenses when it comes time to file your taxes, and it will help to ensure that you’re claiming all of the deductions and credits available to you. Track your time in different states by keeping detailed records of the days you work remotely in each state. This will help you determine your tax filing obligations and potential benefits from reciprocity agreements. As remote work arrangements can easily result in employees having to file returns in multiple states, we offer a quick overview of how tax obligations work for a US remote worker.

As a remote worker, you may find yourself earning income in multiple states, which can make handling your state tax filings a bit more complex. However, with a bit of planning and organization, you can navigate the process with ease. In this section, we’ll explore how to handle multiple state tax filings as a remote worker.

Stay Updated on Changing Tax Laws

Make sure to keep track of all your remote work-related expenses, such as home office expenses and internet and phone bills, as these may be deductible in some states. Doola simplifies the tax filing process for remote workers by gathering and managing relevant documents, ensuring proper filing in all necessary states, and handling communication with tax authorities. Our team helps you identify and claim all applicable deductions and credits related to your remote work setup, potentially reducing your tax liability. If you are clear about working as a remote employee/contractor as a long-term career, consider choosing a residency after checking its tax implications. While lifestyle factors are essential, researching state income tax rates and the availability of remote work-friendly deductions or credits in different states can help you unlock potential tax savings. Working remotely opens a whole new world of possibilities, from being able to travel while working to avoiding the daily commute.

It is limited to the amount of tax California would have imposed on that income, or the actual tax paid to the other state, whichever is less. For example, if you paid $1,000 in income tax to another state on remote work earnings, but California’s tax on that same income would have only been $800, your credit would be limited to $800. As of 2024, over 58 countries offer digital nomad visas, including new additions like Malaysia, Ecuador, Namibia, and Portugal.

The IRS defines your residency based on your domicile, which is generally the state where you permanently reside. Also, check the IRS updates for tax guidelines and regulations periodically for the latest information on federal tax requirements for remote workers. As a last resort, take extra steps to establish residency in a single country.

You can deduct expenses such as coworking space fees, travel to client meetings, and electronics. Speaking with a tax attorney can help you determine what deductions you qualify for when filing your taxes. With more people living and working in different places, understanding the potential tax implications of working remotely has become more important. Remote employees today may face a more complex tax situation than they’re traditionally accustomed to.

• Another deduction available to remote workers is for travel expenses related to their work.
• While lifestyle factors are essential, researching state income tax rates and the availability of remote work-friendly deductions or credits in different states can help you unlock potential tax savings.
• You should check with each state you have employees in to see what taxes you’re responsible for.
• In this scenario, the tax consequences depend on whether it is the employee’s state or the employer’s state that has the income tax.

Before we begin, it is important to note that this guide primarily focuses on remote work within the US and doesn’t cover filing taxes while working remotely from outside the country. According to Forbes, 32.6 million Americans will work remotely by 2025 and 57% of workers would go for a new job if their current company stopped offering remote work. While the remote work culture has its perks like flexibility and better work-life balance, it comes with critical tax considerations. Checking with the tax authorities in the country where you spend most of your time working is the best way.

• Spending time in multiple states can further complicate your taxes and may require you to track the amount of time you spend in each state.
• You can claim an exemption from paying taxes to the state where you physically worked, as long as you meet the agreement’s requirements.
• Each jurisdiction has its reporting requirements, and these can vary considerably.
• In this article, we’ll explore some of the nuances of taxation for remote employees and offer suggestions for best practices to simplify national and international payroll.

If you live in Pennsylvania but work remotely for a company based in New York, you may owe taxes to both states. However, Pennsylvania might allow you to claim a tax credit to avoid double taxation. California residents who work remotely in another state may be obligated to pay income tax in that state as well. To prevent the same income from being taxed twice, California provides the Other State Tax Credit (OSTC). This credit allows a California resident to reduce their California tax liability by the amount of taxes they have paid to the other state on the same income. If you’re still not sure how to pay your remote work taxes as an employee, freelancer, contractor, or digital nomad, always err on the side of caution.

In the U.S., remote workers must pay federal income tax, and in many cases, state and local income taxes as well. However, if the individual is classified as an independent contractor, they can deduct their business expenses and may qualify for the home office deduction. By taking advantage of deductions and credits available to remote workers and properly reporting your income, you can reduce the amount of taxes you owe.

Being aware of your filing responsibilities helps ensure tax compliance and can prevent unexpected tax liabilities. There are different types of remote work that affect taxes for both workers and employers. Each remote work arrangement—whether telecommuting, working temporarily out of state, or living as a digital nomad—carries unique tax considerations. In most cases, you’ll only have to report taxes to the state you’re currently living in and not the state where the company you’re working for is based.

Therefore, knowing how much to pay is essential to avoid penalties and late fees. You still pay income taxes contingent on how much you earn, which is known as your tax bracket. It’s always recommended to work with a tax professional to ensure that you’re taking advantage of all the deductions and credits available to you and stay compliant with tax laws. Finally, you can use tax software to file your tax returns, which can make the process easier and help you to minimize your tax liability. These software programs will guide you through the process, help you to claim all of the deductions and credits available to you, and ensure that you’re reporting all of your income.