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States such as Wyoming and South Dakota are often highlighted for their favorable self-employed taxes. They maintain low or no income taxes, which can significantly benefit self-employed remote workers. Understanding state tax rules for remote workers also includes factoring in business tax deductions and local regulations. Always consult a tax professional to tailor advice to your unique situation.
Remote workers have to pay two types of taxes: federal (or national) and regional. The federal (national) taxes are those paid to the overall government, while the regional taxes are paid at a state, local, or provincial level. Those taxes will often apply to wherever you receive an income.
Remote workers do not have to file nonresident state tax returns unless they physically travel to another state and perform work while they are there. In certain cases, a reciprocity agreement may protect workers from taxes in different states. Not all states levy a state income tax.
Double Taxation Chances are, you won't actually be double-taxed?aka taxed for the same income in two different states, paying twice as much in taxes as you normally would. That said, you do want to be aware of which tax laws apply to you and your unique remote work situation.
State Tax Obligations A worker may have tax obligations in any state where they reside and possibly the state where their employer's worksite is located. A permanent remote worker will file their personal income taxes in their state of residence, whether they are a W-2 employee or a 1099-NEC independent contractor.
Let's say you live elsewhere, but work for a New York-based office. As you start to get your paperwork in order for 2022's taxes, remember, you'll have to file state income tax returns in the state you live, along with income tax returns for New York regardless of how many days you were physically in the office.