Remote Work State Taxes: Living in One State, Working for Another

Work remotely for a company in another state: which state do I pay taxes to?

Your home state (where you are a resident) taxes all your wages, wherever you earn them, if it has an income tax. A state where you are not a resident generally taxes only the wages for days you physically work there, even a few days on a work trip; whether you must file there is in nonresident state tax return thresholds by state. The employer's address does not decide it: California, for example, says wages have a source where the services are performed, not where the employer is or where you are paid (FTB Publication 1031).

If your home state has no income tax, nothing offsets the work state's tax (states with no income tax). If it does, its credit may still not cover tax a convenience rule puts on days you worked at home (below).

Two facts decide most cases: where you physically work each day, and which state is your domicile. A case is not simple when an employer's state applies a convenience rule, when two states both call you a resident, when you moved, or when three or more states are involved.

Gather: every W-2 with its state boxes, a day log showing where you worked each day, your lease or deed, and last year's state returns.

What is the convenience of the employer rule, and does New York use it?

New York does. If you are a nonresident whose primary office is in New York, your days telecommuting count as days worked in New York unless your employer has set up a bona fide employer office at your home (New York FAQ). Days count as worked outside New York only when the work, by its nature, cannot be done at the employer's place of business (IT-203 instructions). Only normal work days at home count; a home day spent answering occasional calls or emails is a nonworking day (TSB-M-06(5)I).

Under TSB-M-06(5)I, a home office is a bona fide employer office if it meets either:

• the primary factor: your duties need specialized facilities that cannot be made available at the employer's place of business but are at or near your home; or
• at least 4 of 6 secondary factors and 3 of 10 other factors. Secondary factors include the home office being a condition of employment, a real business reason for the employer to have an office where you live, doing core duties there, meeting clients there regularly, and having no assigned desk at the employer's office.

New York says that unless your employer specifically acted to set up an office at your home, you will generally still owe New York tax on those days. If your primary office is outside New York, a normal work day at home is not a New York day.

New Jersey has no rule of its own; it applies the home state's convenience test to nonresidents whose state has one (it names Delaware, Nebraska and New York). If your primary or assigned office is in New Jersey and you work from home for your own convenience, the wages are New Jersey income. New Jersey allocates nothing if you did no work in New Jersey all year, and the rule does not reach Pennsylvania residents, who are covered by reciprocity (New Jersey FAQ; NJ-1040NR instructions).

Connecticut does the same for nonresidents: days worked outside Connecticut for their own convenience count as Connecticut days if their home state uses a similar test (Conn. Gen. Stat. 12-711(b)(2)(C)). Going the other way, a Connecticut resident who wins a challenge to another state's convenience rule gets a smaller Connecticut credit for that state's tax, so owes Connecticut more; Connecticut then gives a credit of 60% of that extra Connecticut tax (Connecticut DRS). These rules differ by state, change, and are challenged; for any other state, check its own revenue department before assuming it has or lacks such a rule.

Live in one state, work in another: do I pay taxes in both?

Often yes. Your home state's resident credit can offset the double tax, within limits. You file a nonresident return in the state where you work, reporting the wages earned there, and a resident return at home reporting all income. Your home state then credits the tax the work state charged on the same income (New York FAQ). The credit uses the tax figured on the work-state return, so that return is usually prepared first (IT-112-R instructions).

Wages are generally split by work days. New York, for example, counts days worked in New York against total days worked, leaving out weekends, holidays, sick days and vacation days not worked (IT-203 instructions).

The credit has limits that can leave you paying more than one state's tax:

• It is capped at your home state's tax on that income. California's credit is the smaller of its own tax on the double-taxed income and the other state's tax on it (Schedule S). New York's credit cannot cut its tax below what it would be without that income (IT-112-R instructions). If the work state's rate is higher, you pay the difference.
• Your home state uses its own source rules. California allows the credit only on income that has a source in the other state under California law, even where the other state's rules differ, and it sources employee wages where the work is done (Schedule S instructions). So tax New York charges under its convenience rule on days you worked at home in California generally falls outside California's credit.
• Not every pair of states works the usual way. California allows its residents no credit where the other state gives California residents a credit for California tax, and it lists the states that qualify (Schedule S instructions).

Some neighboring states have reciprocal agreements that let commuters pay only their home state; whether one covers you, and whether you must file in the work state at all, is in nonresident state tax return thresholds by state.

Which state am I a resident of if I split my time or keep a home in my old state?

Your domicile is the one place you treat as your permanent home and intend to return to; you can have only one. You can also be a resident of a second state by keeping a home there and spending enough days there. New York says your domicile does not change until you show, with clear and convincing evidence, that you abandoned it and moved the focus of your life elsewhere; registering to vote or filing a certificate of domicile is not enough (New York FAQ).

In New York and Connecticut, a permanent place of abode does not have to be owned; a home you rent, or one your spouse owns or leases, can count. New York and Connecticut treat a domiciliary as a nonresident if all three are true: no permanent place of abode in the state, one elsewhere for the whole year, and 30 days or fewer in the state (New York definitions; Connecticut DRS). Keep a day log (where you slept and where you worked each day), because day counts and work-day splits are what states check.

Can two states both treat me as a resident in the same year?

Yes. A New York domiciliary who rents an apartment in Virginia and lives there more than 183 days can be a resident of both, and each can tax all of the person's income (Virginia Tax; New York definitions). The resident credit does not fully fix dual residency. New York's credit for a dual resident excludes some investment and business income, and is not available at all if the other state credits the full New York tax (IT-112-R instructions).

The result can be that interest, dividends and other income are taxed in full by both states. Dual residency is fact-heavy and often comes up in an audit; it is a case for professional review.

Moved mid-year with a remote job: which state taxes me?

A part-year return is generally filed in each state you lived in. Each state taxes all income received while you were its resident, plus income from its sources while you were not. California and New York both apply this split (FTB Publication 1031; IT-203 instructions). Virginia's part-year form is Form 760PY, but if you lived in Virginia 183 days or fewer you can instead file as a nonresident on Form 763, which allows the full personal exemption and standard deduction rather than prorated ones (Virginia Tax).

Wages are generally split by when you earned them: pay for each resident period goes to that state, and after the move the old state taxes only wages sourced to it, such as days you still work there. New York applies its convenience rule only to the nonresident part of the year, counting work days in that period alone (TSB-M-06(5)I). Items you had a right to before the move, such as a bonus already awarded, can belong to the old state's resident period (IT-203 instructions). For bonuses, severance or deferred pay that arrive later, see state tax on deferred pay after a move.

Employer withheld taxes for the wrong state: how do I get it back?

To get the tax back, you generally file a return in the state that withheld it; the state that is owed expects a return and payment. New York, for example, requires a nonresident return to claim a refund of New York tax withheld from your pay (IT-203 instructions). On that return you report only the wages actually sourced to that state, which may be none. Refund claims expire: New York generally allows the later of three years from filing the return or two years from paying the tax (same instructions).

The right state may then show a balance due with interest or an estimated-tax penalty, since nothing was paid to it during the year. Ask the employer to fix its records and issue a corrected W-2; how the employer does that is in employees in another state, and filing with a wrong W-2 is in missing or wrong W-2.

My employer does not withhold for my home state: how do I pay during the year?

You may need state estimated tax payments, or the employer may agree to withhold for your home state. New York, for example, says you may need estimated payments when no tax, or not enough tax, is withheld (New York estimated tax). If the work state withholds, your home-state payments may only need to cover the tax left after the credit your home state will actually allow. Due dates and safe-harbor amounts are in quarterly estimated tax payments.

Freelance or travel for work: which states can tax self-employment income?

Your home state, if it has an income tax, taxes all your business income. A state where you are not a resident generally taxes the part of your business carried on there (IT-203 instructions). Some states look beyond where you sit: California may source a nonresident's service income to California when the customer receives the benefit of the service there, under its market-based apportionment rules (FTB Publication 1031). Whether those rules reach a particular freelancer depends on where the business is carried on, so treat clients in California as a reason to check.

Keep a record of where you worked and where each client is. If the business has owners, staff or sales in other states, see business income tax in other states.

Does New York City tax follow me when I work remotely?

New York City personal income tax follows residence, not work. City residents pay it on all income wherever earned, and nonresidents owe none, even if they work in the city every day. The city residency tests mirror the state's: a city domicile, or a permanent place of abode in the city plus 184 days or more there (New York FAQ). Yonkers is different: nonresidents can owe its nonresident earnings tax on wages earned there, and the convenience rule applies to it too (TSB-M-06(5)I).

Separately, self-employed people can owe New York's metropolitan commuter transportation mobility tax on business done in the Metropolitan Commuter Transportation District (New York City and seven nearby counties) (New York Tax Department). A self-employed person who carries on business in New York City can also owe the city's unincorporated business tax, 4% of taxable income allocated to the city; a credit wipes out a liability of $3,400 or less (NYC Department of Finance). It is filed with the city on Form NYC-202 or NYC-202S, not with the state return (IT-201 instructions). Other cities and counties set their own rules; check the locality's tax office.

Example

These examples are illustrative; figures are in US dollars.

Remote for a New York office, living in California

A California resident earns $150,000 working for a company whose New York office is her primary work location. She works 220 days at home in California and 20 days in the New York office. Assume her home office is not a bona fide employer office, so New York taxes all $150,000 as New York income. She files a New York nonresident return (Form IT-203) reporting all $150,000. California taxes all $150,000 as her home state. On her California return, Schedule S would give a credit only for tax on the $12,500 earned on the 20 New York office days (20 of 240 work days), the smaller of California's and New York's tax on that amount, because California sources the other days' wages to California. New York's tax on the other $137,500 would not be credited, so that pay would be taxed by both states.

Moved mid-year, same remote job

A remote worker earning $120,000 a year moves from Virginia to Florida on April 1 and keeps the job. The $30,000 earned January to March goes on Virginia's Form 760PY, which prorates her exemption and standard deduction; because she lived in Virginia 183 days or fewer, she can instead file as a nonresident on Form 763 with the full amounts. Pay after the move is not Virginia income if she does no work in Virginia, and Florida has no personal income tax. Her W-2 shows all $120,000 to Virginia, so her return reports the correct split, she claims the excess Virginia withholding back, and she asks the employer for a corrected W-2.

A long stay in another state

A remote worker keeps her Florida domicile but rents an apartment in Virginia and spends 200 days there. Virginia treats her as an actual resident (a place of abode and more than 183 days), so it taxes all $90,000 of her income, even though her domicile stays in Florida.

Different for you?

• Two states both claim you as a resident, a state opened a residency audit, you worked in three or more states, or a convenience rule left you with no home-state credit: get individual tax help.
• You are unsure whether a state makes you file at all, or whether a reciprocal agreement applies: see nonresident state tax return thresholds.
• You are the employer, or need the W-2 fixed: see employees in another state.
• A bonus, severance or deferred pay arrives after your move: see state tax on deferred pay after a move.
• Your fund K-1s show income in many states: see state returns for fund investors.
• You are a fund manager leaving New York for Florida or Texas: see fund manager moving to Florida or Texas.
• You are moving abroad: see ending state residency when moving abroad.
• You moved to Canada: see US state tax after moving to Canada.
• You work from another country for a US employer: see working abroad for a US employer.