The Small Business Owner’s Guide to Taxes for Remote Teams

There are a few things to consider if you work remotely in another country where your company is based. First, you will need to check with the tax laws of that country to find out if you are required to pay taxes. If you are not required to pay taxes, then you will not have to worry about this issue.

Make sure you are aware of the tax laws of the country you are working in and withhold the appropriate amount from your paycheck if necessary. Additionally, you may need to file a tax return in the country you are working in if required. However, working abroad is a huge benefit that comes with even bigger tax concerns. This guide answers common questions about taxation abroad, as well as how to stay compliant with local tax rules and regulations, as well as your remote work policy guidelines. For this reason, it is very common for companies to hire international remote workers as contractors instead. A non-resident state, on the other hand, is a state where you haven’t lived for the past year, even though you may have earned income there.

Criteria for determining state tax obligations

Because each state has its own tax rules, knowing the differences between these states is vital. Below, we will go through a few of the more common issues related to taxes between states. From a federal standpoint, the United States tax system is relatively straightforward. However, if you are a remote worker who operates in multiple states, things can get tricky. As of the start of 2023, there are more than 40 countries where you can apply for a digital nomad visa.

  • However, navigating payroll taxes can become more complex when working for international employers or operating as an independent contractor for clients overseas.
  • If a taxpayer temporarily relocated to one of these states due to the pandemic, they will not be liable to that state for income tax.
  • Everyone who earns an income must file a resident tax return in their home state, regardless of where their employer(s) is located.
  • Although these agreements are changing all the time, you can find out about your states by checking with the states in question or with your tax preparer.
  • With remote work taxes, you need to consider so many different things, including your location, where the company is based, and where you do most of your work.

But the all-out global pandemic pushed it into overdrive, and overnight we moved to remote working. However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($105,900 for 2019, $107,600 for 2020, $108,700 for 2021, and $112,000 for 2022). Traveling to another country and working for an extended amount of time seems like a simple process, but it requires some planning and almost always a visa. Professionals around the world want to work remotely, and it’s easy to understand why.

Taxes and Remote Work in a Different State: A Scenario

If you’re a 100 percent telecommuter — you literally don’t come into New York at all for one day during the year — then under some longstanding case law in New York, the convenience rule doesn’t apply. Then, again, avoiding the potential for double taxation that could occur if you have someone who lives in Colorado that has a physical presence rule, but is telecommuting to New York. But New York is married to its convenience rule concept, and I think to your direct question, there’s just a different analysis that could be applied here. If you have the government shutting down your office, you have your employer shutting down your office.

Since the start of the Covid-19 pandemic, there has been a dramatic increase in remote and hybrid work. 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. If you work and live in different states and municipalities or if you lived in multiple states throughout the year, you may have to file state or local taxes in each jurisdiction. To avoid paying taxes on the same income twice, the taxpayer can credit the taxes paid in their non-resident state against their home state’s tax liability (or vice versa depending on which state has higher taxes). Across the world, more and more businesses are transitioning to a flexible work model.

European Professional Card (EPC)

Although some states (notably California) have offered some sort of “nexus relief” to avoid overtaxing businesses or individuals for the duration of the pandemic, many haven’t. Others, like Kentucky, have said they’ll consider the impact on taxpayers working from home on a case-by-case basis. Since the coronavirus pandemic began nearly three years ago, an unprecedented number of people have started working from home. Search the two states and «reciprocity rule» to determine whether they work together. If your two states aren’t on this list, you’ll be required to pay taxes for both.

remote work and taxes

Because understanding the tax implications of remote work is crucial for your financial well-being and avoiding any unwelcome surprises from the taxman. If you need to consult a professional, Fiverr has tax and payroll experts that can help you stay compliant. Remote workers can also receive payments through online platforms such as PayPal, Venmo, or Zelle.

What remote workers need to know for tax season

From saving on a commute to becoming more productive in a personalized workspace, going remote offers flexibility and the ability to control how and where you work. Additional tip – Exchange rates are another thing you need to consider with international workers. This is where using someone like Wise or TransferMate can really help keep costs low. If paperwork isn’t your thing, however, then there are payroll companies and apps that can do the work for you. We have some options for payroll apps below that help make sure you are covering all bases.

Pre-COVID-19, before everyone started telecommuting much more, there already was brewing controversy. It just was pretty limited to New York and environs because most states didn’t have the rules and telecommuting wasn’t as prevalent. You’re still on the hook for self-employment taxes, and you cannot contribute to an individual retirement account (IRA) for that year, but you can certainly make up for that with the extra cash you save. FinanceBuzz has partnered with CardRatings for our coverage of credit card products. Still, other states remain silent on what their tax policy will be, or otherwise saying it will depend on the conditions surrounding why a particular taxpayer is working from home. States might be more forgiving if someone is working from home because they’re considered part of the high-risk population, or if they’re working from home due to government lockdown orders.

Why do I need to complete a CAPTCHA? Completing the CAPTCHA ensures that you are gaining secure access to

Hire and pay your global team with Remote and get access to our team of global taxation experts. We’ll be publishing new articles every week, and new social media content every day. If you enjoyed this article, follow us on Twitter or Linkedin, and stay in the loop. Proper recordkeeping ensures accurate tax reporting and helps you maximize your deductions while minimizing the chances of triggering an audit.

Convenience-rule states employ what’s known as a convenience-of-employer rule. This means that if an out-of-state employee works for a company based solely on the convenience of the company, the company must withhold state income tax. In this case, a person may be subject to double taxation — state income tax in the state reside, as well as where their employer is headquartered. Reciprocity agreements are contracts between states that allow residents of one state to work in a neighboring state without having to file non-resident tax returns.

Post a comment

Tu dirección de correo electrónico no será publicada. Los campos obligatorios están marcados con *