Multi‑State Filing for Remote Workers: When to File and How to Allocate Income

Overview

Remote work has blurred the line between where you live and where you earn income. For tax purposes, many states treat income differently based on residency, physical presence, and where the services were performed. If you worked in more than one state during the year or your employer is located in a different state from where you performed the work, you may owe tax in multiple states and must file the appropriate resident, part-year, or nonresident returns.

In my practice I commonly see two problems: workers underreporting income in nonresident states and failing to claim credits on resident returns. These mistakes can trigger audits or unexpected bills. Federal guidance doesn’t override state rules, so you must follow each state’s tax laws (see state tax agencies and the Multistate Tax Commission for details).

Authoritative sources: IRS (www.irs.gov), U.S. Bureau of Labor Statistics (www.bls.gov), Multistate Tax Commission (www.mtc.gov). For state-specific rules, always consult the state tax department.

How do states decide who must file? (Residency, source, and nexus)

States use three common concepts to decide filing requirements:

• Residency: If you are a state resident for the whole year, you generally must report all worldwide income to that state, then may get a credit for taxes paid to other states.
• Source (situs) of income: Wage income is typically sourced to the state where the work was physically performed. If you performed work inside State A, that portion of wages is owed to State A even if you live in State B.
• Nexus / employer withholding: Employers may need to withhold for states where you work. Employer payroll responsibilities can create withholding in multiple states, but withholding doesn’t replace your filing obligation.

States vary in definitions of residency (domicile vs. statutory resident) and in how they source income. Some states apply special rules — for example, New York’s “convenience of the employer” rule can treat work performed at an employee’s home as New York-sourced under certain conditions. Always confirm with the specific state’s tax guidance.

Internal resources: See our State Tax Residency Checklist for Remote and Hybrid Workers for a step-by-step residency review: https://finhelp.io/glossary/state-tax-residency-checklist-for-remote-and-hybrid-workers/

When do remote workers need to file in multiple states?

You will likely need to file a nonresident or part-year return in any state where you:

• Performed services (worked) physically during the tax year; or
• Received wages that a state treats as sourced to it (e.g., under employer-location or convenience rules); or
• Established tax residency (even part-year) by moving into or out of a state during the year.

Common triggers include:

• Regular telework for an employer based in a different state.
• Splitting time between a primary residence and a second home in another state (seasonal workers).
• Short-term assignments or frequent travel that creates days of presence in more than one state.

See our primer on how remote work affects state withholding to help determine payroll behavior and employer responsibilities: https://finhelp.io/glossary/how-remote-work-affects-state-tax-withholding/

How should you allocate income between states? Practical methods

States typically accept one of the following approaches for allocating wages:

1. Days-worked method (most common) — Allocate based on the number of workdays in each state. Example: If you worked 240 total workdays, 40 in State A and 200 in State B, then 40/240 (16.67%) of wages are State A-source.

2. Hours-based allocation — Use if your workday lengths vary drastically and the state permits hours instead of days.

3. Employer-provided allocation or safe-harbor — Some employers provide payroll allocations or withholding notices; these can be used, but you should confirm the method is acceptable to the state.

Worked example:

• Salary: $120,000
• Total workdays: 240
• Days worked in State X: 48
  Allocation to State X = 48 / 240 = 20%; taxable income in State X = $24,000.

Keep contemporaneous records: calendar entries showing where you worked, employer telework agreements, meeting logs, travel receipts, and time-tracking exports. States expect reliable documentation if you are audited.

How to avoid double taxation: credits and coordination

Most states provide a credit on your resident return for income taxes paid to another state on the same income. Typical workflow:

1. File a nonresident return to the state where income was earned and pay any tax due.
2. File a resident return in your home state and claim a credit for taxes paid to the other state (subject to limits and adjustments).

Important caveats:

• The credit usually equals the lesser of taxes paid to the other state or the resident-state tax attributable to the same income.
• If you were a part-year resident, you claim credit only for the portion of the income taxed by the other state while you were a resident or nonresident, depending on state rules.

Because state rules differ, the credit process and computations vary. When in doubt, consult the resident and nonresident return instructions and consider professional help.

Special rules to watch for

• Convenience-of-employer rules: A few states (notably New York) treat telework performed outside the state as in-state income unless the out-of-state work was required by the employer. See New York Department of Taxation guidance for details.
• Reciprocal agreements: Some neighboring states have reciprocity for wage withholding (common with commuters). If your states have reciprocity, you may avoid nonresident withholding but you still may need to file to settle tax liability. See our overview of reciprocity in multi-state contexts: https://finhelp.io/glossary/remote-work-and-state-residency-avoiding-multistate-tax-surprises/
• Temporary COVID-era changes: Several states issued temporary guidance during the pandemic about telework sourcing; many of those guidance pieces have expired or changed. Rely on current state guidance.

Practical filing workflow (step-by-step)

1. Determine residency status and whether you were part-year resident anywhere.
2. Identify states where you physically performed work and where your employer has nexus.
3. Gather documentation: calendar, time-tracking, travel records, employer telework policies, payroll statements showing withholding.
4. Use a days- or hours-based allocation to compute income taxable to each nonresident state.
5. File nonresident/part-year returns where required and pay tax or request refunds if overwithheld.
6. File your resident return and claim credits for taxes paid to other states.
7. If withholding is wrong, ask your employer to adjust state withholding (use state W-4 or equivalent). If necessary, you may need to file amended returns.
8. Keep records for at least three years; many states recommend keeping records for up to seven years in case of audit.

Common mistakes and how I help clients avoid them

In my practice I often see:

• Relying solely on employer withholding as proof you don’t owe tax to a state. Withholding is not the same as filing.
• Not documenting telework days. A contemporaneous calendar export often resolves disputes in audits.
• Missing credits on resident returns. I walk clients through resident-credit worksheets and confirm they’re not double-claiming.

To avoid these mistakes: use a simple daily work log, request a written telecommuting policy from your employer, and if you have split-year residency, run both the nonresident and resident computations before filing.

When to get professional help

If any of these apply, consult a tax professional experienced in multi-state issues:

• You worked in three or more states in a year.
• You earned significant contractor or partnership income while remote.
• You have a high income and state taxes materially affect your tax picture.
• Your employer uses a complex allocation method or won’t adjust withholding.

A practitioner can prepare accurate allocations, minimize tax through credits and deductions, and represent you during state audits.

Documentation checklist

• Electronic calendar exports showing work location by day
• Travel itineraries and boarding passes (if travel creates work presence)
• Employer telework agreement or written instructions
• Payroll stubs showing state withholding
• Time-tracking reports or project logs

Keep these for at least three years; if you have large adjustments or audit risk, retain up to seven years.

Final notes and legal disclaimer

Multi-state filing rules vary by state and evolve over time. This article provides practical guidance but is not tax advice for your specific facts. For state-specific rules, consult the relevant state tax department and consider professional tax advice. See the IRS for federal rules (https://www.irs.gov/) and the Multistate Tax Commission for multi-jurisdictional guidance (https://www.mtc.gov/).

Internal resources:

• State Tax Residency Checklist for Remote and Hybrid Workers: https://finhelp.io/glossary/state-tax-residency-checklist-for-remote-and-hybrid-workers/
• How Remote Work Affects State Tax Withholding: https://finhelp.io/glossary/how-remote-work-affects-state-tax-withholding/
• Remote Work and State Residency: Avoiding Multistate Tax Surprises: https://finhelp.io/glossary/remote-work-and-state-residency-avoiding-multistate-tax-surprises/

Sources and further reading:

• IRS, Tax Topics and Publications, current guidance: https://www.irs.gov/
• U.S. Bureau of Labor Statistics, remote work trends: https://www.bls.gov/
• Multistate Tax Commission, guidance and reports: https://www.mtc.gov/

Professional disclaimer: This is educational information and not individualized tax advice. If you need specific tax planning or representation, consult a licensed CPA, enrolled agent, or tax attorney.