Managing Tax Season as a Remote Worker
How to file taxes as a remote worker or freelancer. | Photo by Kelly Sikkema on Unsplash
Remote teams or remote workers have the opportunity to spread out over countries and borders. It means dispersed team helps a business cover different time zones and source talent from anywhere. However, at an individual-level, it means the remote worker has flexibility and responsibility to dictate their day. It also mean that at tax season, it can be complicated, especially if you work from home in one state for a company located in another.
Luckily, technology can also help when it comes to taxes. Using cloud-based tax software, or consulting with an accountant or a financial advisor can be crucial to make sure you’re filing your taxes correctly. Here’s a closer look at tax considerations relevant to remote workers, as well as your options when you need help.
Are You a Remote Worker or a Freelancer?Knowing the difference can help you determine your tax responsibilities. A freelancer is a self-employed person who is contracted by a business or company and files taxes for their state of residence. The self-employed must calculate their own tax rates and deductions, but while this seems complicated because the rates and deductions are fairly standard, it can prove easier than filing taxes as a remote worker. A remote worker is a company employee who isn’t required to physically show up at the office to work. Remote workers will likely need to file more than one state tax return.
To Deduct or Not to Deduct
This is definitely the question, and it will depend on how you answered the previous question. If you are a freelancer and run your own business from your home, you may be able to claim the Home Office Deduction. But this is only if you have a dedicated space in your home from which you regularly conduct business.
Unfortunately, if you work from home for an organization, 2018’s Tax Cuts and Jobs Act was a double-edged sword. Before the act passed, you could take advantage of a modified version of the Home Office Deduction — not anymore. Now, one of the best ways to get the most out of your home office expenses is to work with a tax professional who knows all the proverbial tricks of the trade. You could also be saved money by reciprocal tax agreements between states.
If you use your vehicle as well as your house to conduct business, you can also itemize your yearly mileage and receive a credit on your taxes based on a specific mileage rate. The rate is published each year. There are three different categories: standard business, medical or moving purposes, and service of charitable organizations.
Filing Taxes in More Than One State
As a remote employee, you may need to file at least two tax returns — a resident return for the state you live in, and a non-resident return for the state your employer is based in.
First of all, not all states collect income taxes. If you reside or work for an employer from one of the following states, you may only have to file one return — or none at all. Here’s a list of the nine states that don’t have an income tax:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
Depending on how your employer structures their accounting, your W-2 may vary. If the W-2 you receive from your employer displays a state other than where you live and it’s not an income tax-free state, you may also need to file a non-resident tax return.
Some employers may have already withheld taxes in your non-resident state, which will show on your W-2. In this case, you’ll likely need to report your tax withholdings on the non-resident tax return from your employer’s state. Even though you report the withholdings in your non-resident tax return, you’ll also need to report them on your home state’s tax return, too. To avoid paying the same tax twice, you can request a credit for the taxes your employer deducted and paid to the non-resident state on your behalf.
You can ask your employer about their accounting protocols for guidance on how you should file your taxes as a remote worker. States have varying rules for non-resident tax filings, complicating issues, and your employer may have more information on their state tax rules. Or you can consult a professional to ensure you’ve filed your taxes correctly.
Getting Help When Filing
There isn’t a general rule of thumb for filing taxes when you’re a remote worker employed by a company operating in a different state. Filing taxes as a remote worker may be too complicated to do yourself. Tax-filing software could be a good alternative, taking the guesswork out of the process and minimizing your tax liability.
Consulting an expert like an accountant or financial advisor may also be helpful. The two professionals play different roles in helping you figure out different aspects of your taxes. An accountant is useful for planning and filing your taxes. A financial advisor could help you manage your employee benefits, such as your pension and retirement plans.
Regardless of what type of help you get for managing your taxes as a remote worker, knowledge is vital to comply with your state’s income tax requirements.
Guest writer Noah Rue is a journalist and a digital nomad, fascinated with the intersection between global health, personal wellness, and modern technology. When he isn't searching out his next great opportunity, Noah likes to shut off his devices, head to the mountains and read novels based in the American Southwest.