Tax Implications of Remote Work Across State Lines

The Remote Work Tax Problem

The shift to remote work has created a tax mess that most workers do not realize exists. When you live in one state and your employer is in another, or when you split your time between multiple states, you may owe taxes to more than one state. The rules vary dramatically from state to state, and getting it wrong can result in double taxation or unexpected tax bills.

The Basic Rule: You Are Taxed Where You Work

Most states follow a simple principle: income is taxed in the state where the work is physically performed. If you live in Texas (no state income tax) but spend two weeks working from your company's New York office, New York can tax the income earned during those two weeks.

Conversely, if you live in New York but work remotely from Florida for three months, you might argue that Florida (no income tax) is where the work was performed. However, New York and several other states have rules that complicate this.

The Convenience of the Employer Rule

A handful of states apply the "convenience of the employer" doctrine, which taxes remote workers as if they were working in the employer's state unless working remotely is a necessity (not a convenience) for the employer.

States that apply some version of this rule include:

New York (most aggressive enforcement)

Connecticut

Delaware

Nebraska

Pennsylvania

How It Works in Practice

If your employer is headquartered in New York and you work remotely from New Jersey for your own convenience, New York claims the right to tax all of your income as if you performed the work in New York. New Jersey also taxes you as a resident. You get a credit for taxes paid to one state, but the interaction can result in a higher overall tax burden.

The Legal Landscape

This rule has been challenged in court multiple times. In 2023, New Hampshire brought a case to the US Supreme Court challenging Massachusetts' similar rule, but the Court declined to hear it. For now, the convenience rule stands in states that enforce it.

Reciprocity Agreements

Some neighboring states have reciprocity agreements that simplify things. If you live in one state and work in another that has a reciprocal agreement, you only owe income tax to your state of residence.

Common Reciprocity Pairs

DC, Maryland, Virginia: Full reciprocity among all three

Illinois and Iowa, Kentucky, Michigan, Wisconsin: Illinois has agreements with these states

Indiana and Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin: Indiana has multiple agreements

New Jersey and Pennsylvania: Reciprocal agreement

Ohio and Indiana, Kentucky, Michigan, Pennsylvania, West Virginia: Extensive reciprocity

If reciprocity applies, file a withholding exemption form with your employer so taxes are withheld only for your home state.

Multi-State Filing Requirements

When you work in multiple states without reciprocity, you typically need to:

1. File a Non-Resident Return in the Work State

Report income earned in that state. The state taxes you on the income attributable to work performed there, usually calculated by the number of days worked in the state divided by total working days.

2. File a Resident Return in Your Home State

Report all income (worldwide). Your home state taxes your total income but provides a credit for taxes paid to other states. This credit prevents full double taxation but does not always result in a perfect offset.

3. Apportioning Income

Most states use a days-worked formula:

State-source income = (Days worked in state / Total work days) x Total income

Track your work location each day. A contemporaneous log is the best documentation if any state challenges your apportionment.

What Employers Need to Know

Remote employees can create nexus for their employers. If you work from a state where your employer has no physical presence, your remote work may require the employer to:

Register to do business in that state

Withhold state income tax for that state

Pay unemployment insurance in that state

Collect and remit sales tax (if applicable)

Many employers address this by restricting which states employees can work from or by requiring employees to notify HR of any temporary relocations.

Common Remote Work Scenarios

Scenario 1: Permanent Remote Worker in a Different State

You live and work entirely in State A. Your employer is in State B with no convenience rule.

Result: You owe tax only to State A (your resident state). Your employer should withhold for State A. If the employer incorrectly withholds for State B, file a non-resident return in State B to request a refund and file your resident return in State A.

Scenario 2: Split Time Between Home and Office

You live in State A and commute to your employer's office in State B three days per week.

Result: You file a non-resident return in State B for the income earned on days worked there. File a resident return in State A for all income, claiming a credit for taxes paid to State B.

Scenario 3: Digital Nomad Moving Between States

You work remotely from several states throughout the year: three months in Colorado, two months in Florida, four months in California, three months in Oregon.

Result: You file non-resident returns in Colorado, California, and Oregon for income earned in each state (calculated by days). Florida has no income tax. If you established tax residency in one of these states (typically by having a permanent home and spending the most time there), that state is your home state and taxes your worldwide income with credits for other states.

Scenario 4: Temporary Relocation

You live in State A but spend six weeks working from a rental in State B.

Result: Many states have de minimis thresholds that exempt short stays from filing requirements. Common thresholds range from 15 to 60 days. Check State B's rules. If below the threshold, no non-resident return is required.

States with No Income Tax

If either your home state or work state has no income tax, life is simpler:

Alaska, Florida, Nevada, New Hampshire (limited), South Dakota, Tennessee, Texas, Washington, Wyoming

Working remotely from one of these states means no state income tax on wages earned there. If your employer is also in a no-income-tax state, your state tax obligation is zero.

Tax Planning Strategies for Remote Workers

Document Your Work Location Daily

Keep a log or use software that tracks which state you work from each day. This is critical for accurate apportionment and defending your position if audited.

Understand Your State's Residency Rules

Simply working in another state does not change your residency. But spending extended time away from your home state while maintaining few ties there could. States look at factors like where you vote, your driver's license, where your family lives, and where your financial accounts are based.

Negotiate Employer Withholding

If your employer withholds for the wrong state, straighten it out quickly. Overwithholding means tying up money until you file returns and receive refunds, which can take months.

Consider Relocation

If your total state tax burden is high and your employer allows full-time remote work, relocating to a no-income-tax state can save tens of thousands annually. Make sure to fully sever ties with your prior state by changing your driver's license, voter registration, and establishing your new home as your domicile.

Use the salary tax calculator to compare your after-tax income across different states and our tax optimization guide for broader planning strategies.

Getting Help

Multi-state tax situations are among the most complex individual tax scenarios. Taxation.ai handles multi-state income allocation, generates non-resident state returns, and calculates credits to prevent double taxation. The platform tracks your work location data and produces the documentation needed for each state filing.