Remote workers face double taxes in some U.S. states
WASHINGTON D.C., UNITED STATES — The rise of remote work has introduced a complex tax situation for some U.S. employees and employers.
If an individual lives and works in different states, they may owe income taxes to both, especially if their company is based in a “convenience rule” state that taxes telecommuting nonresidents.
“Many remote workers will face tax liability in multiple states… But some are unfortunate enough to work for companies based out of states that have what’s called a convenience rule, which can result in two states taxing the same income without any adjustment,” Jared Walczak of the Tax Foundation told FOX Business.
The five convenience rule states are Connecticut, Delaware, Nebraska, New York and Pennsylvania. New York’s policy is particularly aggressive, taxing telecommuters even if they never set foot in the state.
Walczak explains, “The problem is you might work in another state, and from that state’s perspective, you clearly worked there as well as lived there, so they’re not giving you a credit for New York taxes.”
Some relief measures do exist. Reciprocity agreements between certain states allow workers to only file and pay taxes where they live. Currently, 16 states and Washington D.C. participate in about 30 such pacts. However, reciprocity is still limited.
If there’s no reciprocity agreement in place, “You ultimately sort of end up paying the higher of the two rates, but you don’t pay twice,” Walczak said.
