The number of people permanently working remotely is on the rise.
For many, this is the first time working from home has been an option, so how to file taxes while telecommuting is a hot question right now. I want to make sure you get this right, so today I’m digging into what you need to do to file your taxes if you are a remote worker.
What is a remote worker?
First of all, let’s make sure your definition and the government’s definition of a remote worker are one in the same. Remote workers are those who are employed by a business but whose official worksite is a location outside the geographical location of that business. A teleworker, or remote worker, performs all work at an alternative worksite, such as the worker’s home.
If you are temporarily working from home due to the pandemic or any other emergency situation, you are not officially a remote worker because your official worksite is still your employer’s geographical location. If it is expected that you will return to that worksite at some point, you are not considered a remote or telecommuting worker for official purposes such as taxes.
Where do I file my taxes if working remotely?
If you are officially a remote worker and are working from your home, then you will file your personal income taxes the same way you always have: to your state of residence. This is true no matter if you are a W-2 employee or a 1099-NEC independent contractor.
What if I work in a different state than my employer?
Even if you work in a different state than where your employer is located, you will file your personal income taxes to the state where you live (tax people call this your “domicile”). You should report all of your income to your home state on a resident tax return.
For example, if you reside and work in Indiana, but your employer’s geographical location is New York, you will report all of your income on your state tax return that you file with Indiana’s Department of Revenue.
The only exception to this would be if your W-2 lists a state other than your state of residence. In that case, you would file a non-resident return to the state listed on your W-2 form in addition to a resident return to your home state. Don’t worry about being taxed twice. Your resident state will give you a dollar-for-dollar tax credit for any income taxes you have to pay to the other state.
What if I do my work outside of my state of residence?
If you live in one state but have the opportunity to work in another state, say at the beach (lucky you!) or at a relative’s home to be close to family, then where you pay personal income taxes gets a little tricky. Before you make any decisions about where you’ll work, make sure you speak to your employer for approval.
You should also check the tax laws for the state in which you are planning to work in order to determine whether or not they will require you to pay non-resident taxes for working in their state. Generally, these tax laws are based upon income thresholds and time spent working in that state.
What if my state of residence doesn’t have income taxes?
If you reside and work in one of the following states, and no other state’s withholdings are listed on your W-2, then you do not need to file a personal income tax return to your home state:
- New Hampshire
- South Dakota
Can I deduct my home office now that I’m working remotely?
Unfortunately, if you are an employee who receives a W-2 from your employer, then you cannot deduct a home office on your tax return. Recent updates to tax law have eliminated this miscellaneous itemized deduction for employees, but it is still available for the self-employed or contract workers who receive a 1099-NEC.
Additionally, expenses that no longer qualify as tax deductions for W-2 remote employees include:
- educator expenses
- business travel expenses
- meal reimbursement
- professional society dues
- union dues
- professional licensing fees
- tools or supplies reimbursement
What are other terms used for working remotely?
Remote workers are often referred to by different terminology. Here are some terms you might hear in your new role:
- Telecommuter (the prefix “tele” means at a distance)
- Working From Home (WFH)
- Mobile Worker
- Make sure you and your employer are clear and in agreement on where you will be performing your work.
- If you plan to work in a different state than where you reside, check into that state’s income tax law to see if you will need to file personal income taxes with them.
- File your personal income taxes to your state of residence and report all of your income on that return.