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Remote Employees and Taxes

Published by Summit Marketing Team on 07 May 2021

REMINDER: Monday May 17th is the IncomeTax Deadline.

Working from home has been on the rise for the last 15 years or so, and the rise has been especially true during the pandemic. There are benefits for both employees and employers. And, like most everything, there are also a few drawbacks to consider too.

The Benefits

Employees. Depending on who you’re talking to, working from home has some great benefits. For example, you will have much less commuting expenses, a lot more flexibility, and you will be able to spend more time with the family too.

Employers. Many employers will have fewer overhead expenses and higher employee retention, etc.Remote work

The Drawbacks

Of course, there are usually a few drawbacks to remote work too. One of which is residing in a different state than your employer, which may have potential tax consequences.

Taxes

Below are 4 tax issues to consider if your work remotely or employ staff that does:

Wage withholding tax. Perhaps you’ve been wanting to move closer to your family and working remotely will give you the opportunity to move. However, many may not be aware that the rate of tax withholdings should be for whatever state you reside no matter what state your employer is located. So, if you move to a different state while working remotely, you should contact the payroll department so they can adjust your withholding to the tax rate of that state. FYI: Some states also require employers to withhold “non-resident” taxes for employees working in a different state.

Multiple state filings. For those who have worked remotely in more than one state, you may be required to file a return for each state. This is because in some states it is required that a non-resident file a state return for the amount earned in that state. If you work in a state that does not have a state income tax, you are neither required to report or pay taxes to that state.

Business expense deductions. Many miscellaneous business tax deductions were eliminated through 2025 in the Tax Cuts and Jobs Act of 2017. Therefore, any out-of–pocket expenses while working remotely, that are not reimbursed by your employer can not be deducted from your income taxes. However, if you are self-employed, using Schedule C of Form 1040, many of your business expenses can still be deducted.

Multi-state employees. As an employer having remote employees in multiple states, you could be required to register your company in those employees’ home states. You may also have to pay estimated taxes, file tax returns in each state, as well as any other reporting obligations for each state. At this point, you may want to go over the various state and federal tax laws with a tax professional.

Although taxes are always complicated, with the pandemic, there is an unprecedented amount of remote employees this year. Whether you’re an employee or an employer, finding a qualified tax professional may help you to better understand your complex tax obligations.

The income tax deadline is Monday May 17th. If you're unable to finish your return on time you can file an extension. However, to avoid penalties and fees you must pay any taxes due by the tax deadline.

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At Summit CPA we offer multiple resources to assist you with all of your tax and financial planning needs. Contact our office at 866-497-9761 to schedule an appointment with our advisors.

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