Remote Work and Taxes: What You Should Know

If you’re still lucky to work remotely, you should know that freedom can come with a hidden layer of tax complexity.  Whether you’re an employee who relocated or an employer managing a team that’s scattered across the nation, multi-state tax rules can catch you off guard.

Let’s go over some tax issues worth paying attention to before tax season arrives.

1. State Tax Withholding Isn’t Automatic

If you’ve moved or are working from a different state than your employer’s physical office, your employer may need to adjust how your taxes are withheld. In many cases, taxes must be withheld based on where you actually live and work, not where the company is headquartered.

Some states even require withholding for non-resident workers, which means your employer has to track which state you’re working from. If you haven’t updated your HR or payroll department, you could end up owing money or getting hit with an unexpected tax bill. So be sure to get your state updated!

2. You May Need to File Multiple State Returns

Remote workers often find they’re required to file tax returns in more than one state. This can happen if:

• You work remotely in a different state from your employer
• You moved states during the year
• Your employer has withholding obligations in multiple states
• You live in a state with no income tax, but perform work in a state that does
• You earned income from property or business activities in another state

The tricky part is that states don’t all play by the same tax rules. Some states tax you based on where you live, some based on where you physically perform your work, and others apply a “convenience of the employer” rule, meaning they may still tax you even if you never set foot in the state. 

If you occasionally travel out of state for work, even just a week, your employer may or may not adjust your tax withholding to reflect that. In most cases, your W-2 won’t automatically show it, so your CPA is the one who helps you determine whether those days create taxable income in that other state. It usually comes up during tax prep, not through extra employer paperwork.

3. Home Office Deductions Are Limited for Employees

A misconception is that working from home means you can write off home-office expenses. The reality is that W-2 employees generally cannot deduct home-office costs under current federal tax law.

After the Tax Cuts and Jobs Act, unreimbursed business expenses like desks, supplies, and office upgrades are no longer deductible unless you’re self-employed. If you do freelance or contract work, the home office deduction may still apply, but it must be used exclusively for business.

4. Employers Face Their Own Set of Challenges

Remote employees don’t just complicate things for themselves; employers also face increased compliance.

Having even one employee in another state can require a company to:

• Register to operate in that state
• Withhold the correct state income taxes
• File additional payroll or employment forms
• Comply with local labor laws

Companies with fully remote teams often rely on tax professionals to make sure they’re meeting all cross-state obligations.

The Money Move

Remote work offers flexibility, but it also introduces tax responsibilities that aren’t always obvious. If you’ve moved, split time between states, or hired employees across state lines, it’s best to speak to a tax professional who can help you stay compliant and avoid surprises at tax time!

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