Why nexus matters for remote employees

Nexus determines which states have the legal right to tax an employee’s wages and to require an employer to withhold and remit income tax. For remote employees, nexus is more than an abstract legal term — it directly affects take-home pay, tax filing obligations, and audit risk. Employers with remote teams must also track nexus because employee activity can create employer-level obligations such as payroll registration, withholding, and unemployment insurance reporting.

Sources: New York State Department of Taxation and Finance (convenience rule) and IRS guidance on residency and allocation of income (NYSDTF; IRS).

How nexus for remote employees is established

States use several, sometimes overlapping tests to determine nexus for income tax or withholding:

  • Physical presence: The simplest and most common trigger is where the employee actually works. If you perform work in State A, State A may claim tax jurisdiction over the wages earned while working there.
  • Employer presence (business nexus): If your employer has an office, payroll agent, or other physical presence in a state, employee wages may be taxable there even if the employee works elsewhere.
  • State rules and doctrines: Some states apply special rules. New York’s “convenience of the employer” rule, for example, can tax nonresidents who work remotely for a New York employer unless the remote work is for the employer’s necessity, not the employee’s convenience. Check your state’s guidance for specific doctrines.
  • Economic or statutory triggers: A handful of states use economic presence, statutory definitions, or a mix of criteria that can include revenue thresholds or days worked.

Because tests and thresholds differ across states, a single remote worker can create nexus in multiple states depending on their pattern of work.

Sources: State tax authorities; examples discussed in FinHelp content and state guidance.

Common scenarios and what they usually mean

  • Living and working entirely in State A for an employer based in State B: Most commonly, State A will tax wages and require withholding; State B generally will not tax those wages for a nonresident unless it has a special rule or employer presence.
  • Living in State A, occasional travel to State B for work: Tax is usually allocated to the state where the work was performed; some states allow de minimis exceptions (e.g., a small number of days constitute no nexus), but many do not.
  • Moving mid-year: You may owe tax to both the old and new state for the portion of the year you lived or worked in each; part-year resident rules apply.
  • Employer located in a no-income-tax state (e.g., Texas) while the employee lives in a state with income tax: The employee’s state typically taxes the wages because tax jurisdiction follows the employee’s residency or where work is performed, not the employer’s tax status.

Real-world note from practice: I’ve worked with clients who assumed working for a Florida-based employer meant no state tax; when they lived and worked in California or New York they still owed state income tax and had to file returns in those states.

Important state examples and special rules

  • New York: The “convenience of the employer” rule can tax remote work by nonresidents who perform services while physically outside New York unless the employer requires work be done from that location for its own business needs. This rule often surprises remote employees and can produce unexpected nonresident tax liability (NYSDTF guidance).
  • No-income-tax states: States such as Texas, Florida, and others have no personal income tax, but an employee who lives and works in a different state will still be subject to that state’s income tax. Employer location in a no-tax state doesn’t shield employees.

Note: Many other states have nuanced rules — some provide de minimis exceptions, day-count thresholds, or specific withholding exemptions for reciprocal agreements. Always confirm with the state’s tax agency.

Employer responsibilities and employer-created nexus

Remote employees can create employer obligations beyond employee withholding:

  • Payroll registration: When an employee works in a new state, the employer may need to register to withhold state income tax and remit payroll taxes in that state.
  • Unemployment insurance and payroll taxes: Employee location can create state unemployment insurance (SUTA) and other payroll exposure for the employer.
  • Corporate tax nexus: Employee activity, even if limited to telework, can contribute to a business having corporate tax nexus for income/franchise taxes in an employee’s state.

Employers should maintain clear telework policies, require employees to report their primary work location, and consult tax counsel when expanding remote teams across state lines.

Internal resources: See our related FinHelp guides for employers on nexus and remote teams (State Nexus Checklist for Out-of-State Remote Employees; Remote Worker Nexus: Complying with Multi-State Tax Rules).

Steps remote employees should take now

  1. Track work location daily: Maintain a simple log or calendar showing where you physically performed work each day—this is your strongest evidence if a state questions nexus.
  2. Review pay stubs and withholding: Confirm your employer is withholding in the correct state. If not, request payroll to update your state of residence/work location.
  3. Check for reciprocity or credits: Some states have reciprocal agreements that allow you to elect withholding in your home state; others allow credits for taxes paid to another state which prevents double taxation.
  4. File correctly: If you’re a resident of State A but worked in State B for part of the year, you may need to file a resident return in A and a nonresident return in B, and claim credits for taxes paid to avoid double taxation.
  5. Seek professional help if you have multi-state exposure: Multi-state returns and employer withholding disputes can be complex—an experienced CPA or state tax attorney can often save more than they cost.

Sources: IRS guidance on residency and allocation of income; state tax agency pages. Also see our primer on multi-state rules: Understanding State Income Tax Nexus for Remote Workers.

Recordkeeping and documentation

Good records reduce audit risk and simplify filings:

  • Workday logs and calendar entries.
  • Employer telework policy and written confirmations of work location.
  • Travel records (airline, hotel, and expense reports) if you travel for work.
  • Pay stubs and W-2s showing state withholding and state wages.

If a state audits your returns, these documents are the best defense to show where income was earned.

Common mistakes and how to avoid them

  • Assuming employer location determines taxability: It’s often where you work or live that matters, not where the employer is headquartered.
  • Ignoring small or infrequent workdays in a state: Some states have no de minimis exception—every day can count.
  • Failing to update payroll after a move: If payroll keeps withholding in the wrong state, you may underpay in the new state and face penalties.

Example case studies (short)

  • Software engineer moves to Georgia, continues to work for a Florida company: Georgia taxes the wages because the employee performs work in Georgia and is a Georgia resident; employer may need to register for Georgia withholding.
  • Employee lives in Texas (no state income tax) but works remotely for a New York employer: If the employee performs services physically outside New York and not under the employer’s necessity, New York’s rules may still apply depending on the facts (convenience rule). Careful analysis is required.

These examples are illustrative; outcomes depend on specific state statutes and facts.

Refunds, credits, and avoiding double taxation

Most states try to prevent double taxation. Common mechanisms include:

  • Resident credit: Your state of residence may give a credit for taxes paid to another state on the same income.
  • Reciprocal agreements: Some neighboring states allow residents to have income taxed only by their state of residence or the state of employment, depending on election and rules.

Always calculate whether you are better off filing as resident and claiming a credit or filing only where you worked, and consult a tax professional for complex situations.

Practical checklist (quick)

  • Start a work-location diary today.
  • Confirm your state of residence with payroll.
  • Ask HR how they handle multi-state withholding and whether they will register in your state.
  • Keep copies of W-2s and pay stubs.
  • Consult a CPA if you cross state lines frequently.

Professional disclaimer

This article is educational and does not constitute legal or tax advice. State tax laws change frequently, and application depends on facts and specific state rules. Consult a licensed tax professional or state tax agency for advice tailored to your situation.

Authoritative sources and further reading

Related FinHelp articles:

If you need help with a specific multi-state filing or employer withholding issue, consult a CPA or state tax attorney who specializes in multi-state taxation.