Quick overview

Remote work removed geographic clarity from everyday income tax rules. That creates both opportunities and traps: you can legitimately reduce state income taxes by changing your state tax home, but you can also face multistate filings, withholding mistakes, and audits if you don’t document and plan correctly.

This guide explains the core rules remote workers need to know in 2025, practical planning steps, employer considerations, and common pitfalls — with links to state-residency resources and internal guides.

Sources: IRS residency guidance and state tax pages for specifics (see links below) and Tax Foundation analysis on state rules.

Core concepts remote workers must understand

  • Residency vs. domicile: Domicile is your long-term legal home; residency (or statutory residency) is a tax concept that states use to decide whether to tax you on all income. Changing domicile requires more than a mailing address change.

  • Source-of-income rules: States tax wages earned for services performed in their jurisdiction, even if the worker lives elsewhere. If you physically perform work in State A for an employer based in State B, State A often has a claim on those wages.

  • Statutory presence tests: Many states apply a days‑present test (commonly 183 days, though thresholds vary) to determine statutory residency. Keep a contemporaneous day log and calendar evidence.

  • Convenience‑of‑employer and special sourcing rules: A few states (most notably New York) apply a “convenience of the employer” standard — if you telecommute from another state for your convenience rather than the employer’s necessity, the state may still tax you on income allocated to work performed for an employer in that state [New York Department of Taxation and Finance].

  • Withholding and nexus: When employees work remotely, an employer may acquire withholding obligations in the employee’s state of residence. States have issued varied guidance since 2020 clarifying employer responsibilities.

  • Credits and reciprocity: To avoid double taxation, many states offer credits for taxes paid to another state or have tax reciprocity agreements with neighboring states for wage income. Credits, however, differ in scope and require careful allocation.

(Authoritative sources: IRS; Tax Foundation; state tax department pages — see links at the end.)

Practical planning checklist for remote workers

  1. Document and define your state tax home
  • Establish domicile with clear evidence: a signed lease or deed, voter registration, updated driver’s license/ID, primary bank accounts, and health care providers in the new state.
  • File a timely change-of-address with USPS and update employer HR records.
  1. Track days and work location
  • Keep a daily log showing where you performed work (home, client site, travel). Many states use days‑present tests so contemporaneous records reduce audit risk.
  1. Review employer withholding and payroll setup
  • Confirm with HR or payroll where they are withholding state taxes. If payroll withholds for your former state, you may need to request a withholding change or an employer adjustment.
  • If your remote work creates employer nexus in your state (varies by state), your employer may be required to register and withhold there.
  1. Understand and claim applicable credits
  • If you file nonresident returns, determine whether your resident state offers a credit for taxes paid to the state where income was sourced. Proper allocation schedules are essential.
  1. Handle part‑year moves and mid‑year relocations correctly
  • File part‑year resident returns where required and allocate income to the correct periods. Keep closing statements, moving receipts, and other timing documentation.
  1. Get professional help for complex situations
  • High-income earners, multi-state contractors, and employees with frequent travel should seek a multistate tax specialist. In my practice I often prepare a multistate projection before a planned move so clients can estimate annual tax impact and withholding needs.

Employer-side considerations and what to ask HR

  • Ask whether payroll will withhold in your new home state and whether your move triggers employer registration/nexus.
  • Confirm whether the employer follows state-specific rules like New York’s convenience‑of‑employer standard and whether they will support withholding adjustments.
  • If you’re a contractor, discuss whether clients will require state invoicing or if you need to register as doing business in multiple states.

Employers and remote workers should coordinate — misaligned withholding caused many surprise tax bills during the shift to remote work.

Examples and outcomes (realistic illustrations)

Example 1 — Relocation to a no‑income‑tax state
A client moved domicile from California to Florida, established clear residency evidence (sale of CA home, utility and voter registration changes, FL driver’s license, and physical presence >183 days). Over the tax year they reduced state income taxes materially. Important: the move required careful timing and documentation to avoid a California statutory residency claim.

Example 2 — Working across state lines without updating withholding
Another client continued to have withholding taken for their prior state after moving. They accumulated a liability for state income tax where they no longer lived and faced penalties for underwithholding. A mid‑year payroll update and filing part‑year returns could have prevented the surprise.

Example 3 — Convenience‑of‑employer rule
Employees who live outside New York but whose employer is based there should understand New York’s rule: if the employee telecommutes for personal convenience rather than employer necessity, New York may tax the wages as if performed in New York [New York DTF]. This is an area where an employer’s written telework policy can influence sourcing determinations.

Common mistakes remote workers make

  • Failing to document the move (no updated license, voter registration, or bills in the new state).
  • Forgetting to change payroll withholding with HR.
  • Assuming reciprocity or credits always eliminate double taxation—credit rules and income definitions vary.
  • Overlooking employer nexus and withholding obligations (which can create payroll tax headaches for the employer and uncollected tax for the employee).
  • Ignoring sales‑tax and property‑tax consequences of remote work equipment or a home office (local rules differ).

Recordkeeping and audit preparation

Keep a single folder (digital and/or physical) with:

  • Proof of domicile (closing statement, lease, utility bills),
  • Driver’s license and voter registration change dates,
  • Daily work location log or time stamps, travel itineraries for work trips, and
  • Payroll notices and withholding change requests.

If a state challenges your residency, contemporaneous records that show intent and physical presence are the strongest evidence.

When you’ll likely need professional help

  • You telecommute frequently to multiple states.
  • You earn income from activities physically performed in several states (contracting gigs, in‑person client work).
  • You plan to change domicile for tax reasons and your former state has aggressive statutory residency rules.

A multistate tax advisor can model your tax outcomes, prepare allocation schedules, and, if needed, negotiate with state tax authorities.

Quick FAQ

Q: Do I always owe tax where my employer is located?
A: Not always. States tax wages based on where services are performed. But special rules (e.g., convenience‑of‑employer) and state sourcing rules can create exceptions.

Q: Can I avoid filing two sets of state returns?
A: Sometimes — reciprocal agreements and tax credits reduce double taxation. But many remote workers still must file at least a resident return and one or more nonresident returns depending on where they worked.

Q: How long must I be in a state before it can tax me?
A: It depends. Numerous states use a days‑present threshold (commonly 183 days) or have statutory residency tests. Check the specific state guidance.

Action plan — 30/60/90 days after you move or change remote work location

  • 0–30 days: Update driver’s license, voter registration, bank and insurance addresses. Inform HR and update payroll withholding. File USPS change‑of‑address. Begin a day‑location log.
  • 30–60 days: Confirm employer payroll withholding changes; request reciprocal withholding forms if available. Gather lease/deed and utility bills.
  • 60–90 days: Review projected tax liability. If it looks substantially different, adjust estimated tax payments or withholding. Consult a tax professional for multistate modeling.

Key resources and further reading

Internal resources on FinHelp:

Professional disclaimer: This article is educational and does not replace personalized tax advice. State rules vary and change; consult a licensed tax advisor or your state tax agency for guidance about your particular facts.

If you’d like, I can provide a simple multistate tax projection checklist tailored to earned income, estimated withholding needs, and a document list for supporting a change of domicile.