Why state tax planning matters now

Remote and mobile work are common in 2025. When you perform work from different states—whether a few days a month or by permanently relocating—you may create tax obligations in more than one state. These obligations can include state income tax, nonresident filing requirements, and withholding mismatches that lead to underpayments or penalties. In my practice helping clients with multi‑state issues, the most common surprise is an unexpected nonresident tax bill for a state where a client simply visited to do business.

Key concepts to understand

  • Resident vs. domicile vs. statutory resident: “Resident” and “domicile” are legal concepts states use to decide tax liability. Many states tax domiciles (your permanent home) or residents who spend a statutory number of days in the state. “Statutory resident” rules vary widely.
  • Sourcing of wages: States typically tax income sourced to work performed within their borders. If you perform work inside State A, State A may tax the wages earned there even if your employer is located in State B.
  • Nexus and employer presence: Employers with offices, payroll, or employees in a state can trigger payroll withholding and employer filing obligations.
  • Reciprocity and credits: Some states have reciprocity agreements or provide credits for taxes paid to other states to avoid double taxation. These rules are state‑specific.

Authoritative resources: check your state tax agency, the IRS for federal withholding guidance (irs.gov), and research hubs like the Tax Foundation and National Conference of State Legislatures for state comparisons.

How states typically decide taxability

States use one or more of these tests:

  • Physical presence / days worked test: If you exceed a days threshold, you may be taxed as a resident or statutory resident.
  • Employer location test: A few states tax based on where the employer is located, though most focus on where the work is performed.
  • Residency / domicile test: If you establish domicile (your permanent home) in a state, you will generally be subject to that state’s tax on worldwide income.
  • Source rule: States tax income earned from services performed within their borders.

Because rules differ, a single fact pattern (for example, commuting for client projects) can lead to several states claiming tax jurisdiction. That’s why recordkeeping is essential.

Practical planning steps (a checklist you can use)

  1. Track days and locations precisely. Use calendar logs, time‑tracking apps, or geolocation reports to prove where you worked on which days. Many states look for contemporaneous records.
  2. Determine your resident state and whether you meet statutory residency tests elsewhere. Keep proof of ties to your domicile: lease/mortgage, voter registration, driver’s license, and family location.
  3. Update withholding promptly. Tell payroll where you are working; file your state withholding form(s) if needed and review your federal Form W‑4 for withholding adjustments.
  4. Run a multi‑state filing projection before year‑end. Estimate taxable income by state and compare with withholding. Make estimated payments or request withholding changes to avoid underpayment penalties.
  5. Ask your employer about payroll setup. Employers can withhold in the wrong state—request corrections early rather than waiting for a refund.
  6. Separate employer reimbursement, per diem, and business expense treatment. Self‑employed workers should plan for estimated tax payments and state‑level gross receipts or income taxes.

Tip: For a structured starting point, use our internal State Tax Residency Checklist to gather documents and dates. See the practical checklist here: State Tax Residency Checklist for Remote and Hybrid Workers.

Withholding, payroll and employer responsibilities

  • Employees: If you perform work in a state that requires withholding, you may need to update state withholding elections with payroll. Federal W‑4 changes don’t change state withholding in many jurisdictions.
  • Employers: Payroll teams must determine the correct withholding state and may need to register and remit withholding in new states where employees perform work. Employers often need guidance on reciprocal agreements and multi‑state payroll setup.
  • Common payroll mistakes: withholding for the employer’s HQ state instead of the employee’s work state; failing to register in states where employees work remotely; not applying reciprocal agreements where they exist.

For more on payroll compliance after shifting remote work arrangements, review our article on remote worker payroll compliance: Remote Worker Payroll Compliance After Multi-State Work Arrangements.

Allocation and filing: nonresident returns and credits

If a nonresident state taxes wages you earned there, you typically must file a nonresident return to report income earned in that state. Your resident state will often offer a credit for taxes paid to other states to prevent double taxation, but credit methods vary.

When preparing returns:

  • Allocate income by state based on days worked, payroll records, or state formulae.
  • Keep employer wage statements and payroll reports; many states require employer‑reported wage allocations.
  • File nonresident returns timely; missing a filing can trigger interest and penalties and make future residency determinations harder.

We cover the technical side of filing and allocation in more detail in our guide: Multi‑State Filing for Remote Workers: When to File and How to Allocate Income.

Special situations and examples

  • Commuter/short visits: Many states have short‑stay exemptions or thresholds, but the rules vary. A business trip may still create a filing requirement if you performed billable or service work while there.
  • Relocation mid‑year: You may be taxed as a resident in two states for the year. File part‑year resident returns and allocate income across periods.
  • Digital nomads and frequent travelers: Keep clear logs. States increasingly scrutinize remote workers who maintain minimal physical presence but derive income from in‑state activity.

Example from practice: I helped a client who relocated from Ohio to Florida mid‑year. Florida has no personal income tax, which changed the client’s planning, but because their employer still reported wages to Ohio and withheld Ohio taxes through the relocation, we corrected payroll withholding and filed a part‑year resident return to recover overwithheld tax. Early coordination with payroll avoids costly amendments.

What employees often misunderstand

  • “I only owe tax where my employer is located.” Not always—most states tax where work was performed.
  • “Short business trips are irrelevant.” Short trips can still trigger filing obligations depending on state thresholds and whether income was earned while physically present.
  • “Home office deductions will save me on my state return.” For employees, federal home office deductions for unreimbursed employee business expenses remain disallowed under the Tax Cuts and Jobs Act for most employees through at least 2025. Some states decouple from federal law and may allow different treatments—check state rules.

Common traps and how to avoid them

  • Poor recordkeeping: Without contemporaneous logs you will have a harder time defending nonresident claims or obtaining refunds.
  • Not checking employer payroll setup: Employers sometimes apply withholding incorrectly; fix this before year‑end.
  • Ignoring reciprocity: If you live near a state border, reciprocity elections may simplify withholding but require timely filing of state withholding forms.

State differences to watch in 2025

  • No state income tax: As of 2025 several states continue to have no personal income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming). Moving to one of these states changes long‑term planning but not necessarily short‑term filing if you still earn in other states.
  • State conformity: States differ in whether they follow federal definitions and deductions. For example, states vary in allowing moving expense deductions or treatment of nonresident allocations.

Reliable references: IRS guidance for federal withholding (irs.gov); state tax agency pages for residency guidance; the Tax Foundation and NCSL for comparative state analysis.

Action plan—what to do this tax year

  1. Build a day‑by‑day work log for the year. Include dates, locations, and whether work was client‑facing or internal.
  2. Ask payroll to review your state withholding setup and, if needed, update state withholding elections.
  3. Run or request a multi‑state tax projection before year‑end and make estimated payments if gaps exist.
  4. Keep a file of residency evidence (lease, voter registration, driver’s license, utility bills).
  5. Consult a CPA or tax attorney if you crossed states frequently, relocated mid‑year, or received notices from a state revenue department.

Resources and where to learn more

Professional disclaimer

This article explains common state tax planning issues for mobile workers and remote employees and is intended for educational use only. It is not tax advice. For specific guidance tailored to your facts and state rules, consult a qualified tax professional or state tax agency. In my practice as a CPA and CFP®, clients with multi‑state work patterns often avoid surprises by documenting days worked and coordinating early with payroll.