If I Work Remotely, Where Do I Pay Taxes?

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Everyone who earns an income must file a resident tax return in their home state, regardless of where their employer is located. This is true for in-office and remote workers — whether you’re a full-time employee or a self-employed freelancer working on a contract basis. Many companies find it easier to hire a foreign worker as an independent contractor instead, because the tax obligations shift to the contractor (the employer doesn’t need to bother with tax withholdings).

Here’s what you need to know about out-of-state remote work and your taxes.

To ensure there is no tax violation, the contractor would need to submit a Form 1042 to the IRS and declare all income made while working in the U.S. While traveling on a tourist visa is legal for shorter stays, most countries require a work visa to conduct business overseas. Some countries offer a special work visa, typically referred to as a digital nomad visa, to help remote professionals extend stays for up to a year or more. The type of visa you travel with will determine your remote tax responsibilities, length of stay restrictions, and the type of work you’re allowed to perform. And since each employee and remote work situation is different, their experience with labor/tax laws may be a massive advantage for your team. Generally speaking, when you pay a remote employee, you pay the local taxes in the state where the employee works. The same options may be available for paying remote employees abroad too.

If you have questions regarding your specific situation and tax liability, it’s best if you book some time to talk with a tax professional. On the flip side, you might find yourself living in a notoriously aggressive state. Although some states have remote work taxes 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.

Remote Work Tax Credits and Exceptions

Wise, in particular, also integrates well with many payroll and accounting systems which is a real bonus. Steven will be subject to Philippine taxes on the salary he earns while in the Philippines. Andrew is a claims adjuster who works at Viva Canada, a subsidiary of Viva, a UK company. Andrew holds US citizenship but has lived in Canada for the past two years.

This is generally true even if an employee is permanently working in one state for two or three days per week and another state for the remaining days, on an ongoing basis. Generally, employees working remotely are subject to the laws of the state where they work – immediately. Employers could inadvertently become liable for diverse state benefit programs or mandates, such as paid leave requirements, minimum wage, required disclosures, diverse wage statement requirements and so on.