Work From Home in Another State? You Could Be Facing a Double Tax Bill

Adam Palasciano
Geber86 / iStock.com
Geber86 / iStock.com

Remote work has brought a new sense of flexibility in terms of where you get your work done.

See: Billionaires vs. the Middle Class: Who Pays More in Taxes?
Find: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing

But, if you work remotely in a different state than where you technically live, you might have to file more than one tax return come April, per USA Today.

Each State Has Different Tax Rules

Tax rules can quickly complicate the ease and flexibility of working remotely from anywhere. The reason? Each state has different rules, but states generally require you to pay taxes and file a return whether you’re a resident or a nonresident earning income in the state. So, if you’re doing your 9-to-5 job remotely from California but you’re technically a New York resident, you could potentially owe taxes in both states. You might also be required to file a tax return in your employer’s state.

Read: The 7 Worst Things You Can Do If You Owe the IRS

Tax Reciprocity Agreements

One way you could be exempt from filing taxes in a different state than where you live is if your state has a tax reciprocity agreement with the state you’re working remotely from. In other words, if a tax reciprocity agreement is in place, then the state you’re working from should not withhold taxes from your paycheck and you won’t be required to file a return for both states. Come tax time, you would only be required to file a return with your home state.

The Tax Foundation reported that there are tax reciprocity agreements between 16 states and the District of Columbia.

If no tax reciprocity agreement exists between the state you’re working in and your home state, you may be eligible for a tax credit from the state where you’re not living and working. In this case, you’ll be required to file two tax returns: a resident tax return for your home state with all your income sources and a nonresident tax return only including employment income.

Some States Don’t Have An Income Tax

The good news? These states that don’t have an income tax and most likely won’t require you to file a state income tax return:

  • Alaska.

  • Florida.

  • Nevada.

  • New Hampshire.

  • South Dakota.

  • Tennessee.

  • Texas.

  • Wyoming.

  • Washington.

Convenience Of The Employer Rule Can Mean Double Taxation

Some states have a “convenience of the employer rule.” This means that if you choose to work in a different state for your convenience and it isn’t a requirement of the company, you’ll still owe tax in the state in which your employer is based. So, if there’s no tax reciprocity agreement in place between your home state and the one you’re working from, and unless you’re working in a state with no income tax, you could be on the hook for double taxation on the same income.

Currently, these states have the convenience of the employer rule in place:

  • Connecticut.

  • Delaware.

  • Nebraska.

  • New York.

  • Pennsylvania.

  • Massachusetts (which requires you to file an income tax return if your gross income exceeds a certain threshold).

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This article originally appeared on GOBankingRates.com: Work From Home in Another State? You Could Be Facing a Double Tax Bill

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