Overview

Remote employees who split time across states may face multiple state income tax rules that affect withholding, filing, and net pay. States decide tax liability using residency, domicile, and source-of-income rules—so where you live, where you perform work, and your employer’s withholding practices all matter.

Key items to watch

  • Residency vs. domicile: States tax residents (often by domicile or statutory residency). If you are domiciled in a state, that state can tax all your income. See more on residency tests in our guide: State Residency Tests for Remote Employees: Determining Your Tax Home.

  • Source-of-wage rules: Some states tax wages earned while physically working in the state, regardless of employer location. New York’s “convenience of the employer” rule and similar statutes can create tax liability even if your employer is out-of-state.

  • Reciprocity and credits: Several neighboring states have reciprocal agreements that prevent double withholding (e.g., PA–MD style reciprocity). When there’s no reciprocity, most states offer a credit for taxes paid to another state to reduce double taxation—check state instructions.

  • Withholding and employer responsibilities: Employers generally must withhold where employees perform services or where the employee is a resident. Employers that hire remote staff in new states may trigger withholding and registration obligations; see our employer checklist for multistate withholding: Multistate Withholding for Remote Workers: Employer and Employee Checklists.

  • Local taxes: Some cities and counties (for example, New York City or certain Pennsylvania localities) levy income taxes separate from the state. Don’t overlook municipal obligations.

  • De minimis / telework day rules: Several states allow a threshold of days worked remotely before tax residency or withholding applies. Track days carefully; this record keeping is often decisive in an audit.

  • Estimated payments and filing: If you owe tax to multiple states, you may need to make estimated payments in each. When filing, prepare to submit resident returns and nonresident returns with required schedules to allocate income.

Practical steps to reduce risk

  1. Track time and location: Keep a log of where you worked each day (date, city, state). This is the single most useful record in multistate disputes.
  2. Confirm employer withholding: Ask payroll which state(s) they are withholding for and request adjustments if necessary. If withholding is wrong, you may owe estimated taxes or face penalties.
  3. Evaluate reciprocity/credits: Compare the states’ rules—if you live in one state and work in another, a credit or reciprocal agreement may eliminate double tax.
  4. Register or update HR: If you move permanently, notify HR so payroll, benefits, and state withholding reflect your new residence.
  5. Get professional help before large moves: In my practice I’ve seen modest oversights (a missed day log or old address) lead to multi-thousand-dollar bills. A CPA or state-tax specialist can run the numbers ahead of time.

Employer-side considerations

Employers that allow remote work should review nexus and payroll registration obligations as remote hires can create multistate withholding responsibilities and payroll tax filings. See practical filing steps for employees and employers here: Multistate Filing Made Simple for Remote Employees: Practical Steps.

Common mistakes

  • Assuming you only owe taxes where your employer is located.
  • Relying on memory rather than contemporaneous location logs.
  • Ignoring city or local taxes.
  • Waiting until filing season to correct withholding.

When to consult a professional

If you moved states during the tax year, split time between states, have an employer with offices in several states, or face an assessment from a state tax agency, consult a CPA or tax attorney familiar with multistate issues.

Authoritative sources and further reading

  • Tax Policy Center — state and local tax briefs: https://www.taxpolicycenter.org
  • For federal guidance and links to state resources, see IRS (general): https://www.irs.gov
  • Check your state department of revenue website for authoritative withholding and residency guidance.

Disclaimer

This article is educational and not legal or tax advice. Rules vary by state and change frequently—consult a licensed tax professional for guidance tailored to your situation.