Background

The rise of remote work and gig platforms has pushed more freelancers into multistate tax territory. States historically could tax only in-state residents or businesses with a physical presence; since the U.S. Supreme Court’s South Dakota v. Wayfair, Inc. (2018) decision states have broader authority to impose economic nexus rules for sales and, increasingly, to assert tax claims tied to remote activity. For federal guidance on small-business tax responsibilities, see the IRS small-business pages (IRS.gov).

How multistate filing typically works

  • Determine residency status. Your state of domicile (where you intend to return) usually taxes all your income. A second state may tax income earned while physically working there. Rules differ: some states tax nonresidents only on income sourced to the state; others have broader definitions.
  • Source your income. States use different sourcing tests (work performed, customer location, or where the contract is performed). Keep contemporaneous records of where you worked for each client.
  • Register and withhold. If a state requires filing, register for a tax account and, where applicable, make estimated tax payments or set up withholding. Contractors should also know state rules for sales tax and business registration (nexus).
  • Claim credits. Most states give a credit to residents for income taxes paid to another state to reduce double taxation; the method and limitations vary.

Real-world example (brief)

I helped a freelance UX designer based in New Jersey who did short, on-site projects in Connecticut and client work for a company in Massachusetts. We tracked days on site, sourced the income to the state where the work was performed, registered in Connecticut for withholding, and used a resident credit on the New Jersey return to avoid double taxation.

Who needs to worry

  • Freelancers who travel to perform work, work remotely for clients in other states, or live in one state while servicing clients in many others.
  • Sellers of goods or digital services may also trigger sales-tax nexus; after Wayfair, many states adopted economic thresholds (commonly $100,000 in sales or 200 transactions) to require registration for sales tax.

Common pitfalls to avoid

  1. Poor recordkeeping: Without dates, locations, and client invoices you can’t reliably source income or defend your position in an audit. Keep a simple log of project dates, work location, client, and payment amounts.
  2. Assuming client location equals income source: Some states source income to where the service is performed, not where the client is based.
  3. Ignoring registration thresholds: You may need to register for income tax withholding or sales tax even if you don’t have an office there.
  4. Missing estimated payments: Underpaying state estimated taxes can trigger penalties.
  5. Overlooking local taxes: City or county taxes can also apply in some jurisdictions.

Practical checklist — steps to reduce risk

  • Track time and location per project (date, city/state, type of work).
  • Review state residency and sourcing rules each tax year.
  • Register with state tax agencies before you owe (many states offer online registration).
  • Make quarterly estimated tax payments where required.
  • Keep copies of state returns, correspondence, and proof of credits claimed.
  • When unsure, consult a CPA or tax attorney with multistate experience.

Relevant resources and interlinks

Frequently asked questions (short)

  • Do I have to file in every state where I have clients? Not necessarily. Filing depends on each state’s sourcing, nexus, and residency rules. A state may tax income only if it’s sourced there or if you meet their nexus criteria.
  • What counts as income earned in a state? States use different tests — common methods are where the work is performed, where the customer is located, or where the contract is executed.

Professional perspective

In my practice working with freelancers, the most effective preventive step is consistent recordkeeping. It solves most sourcing disputes and simplifies claiming resident credits. When estimated payments are set up correctly, clients avoid most penalties and year-end surprises.

Authoritative sources

Disclaimer

This article is educational and not a substitute for personalized tax advice. State tax rules change and vary by facts; consult a licensed tax professional or state tax agency for decisions affecting your situation.

If you’d like a concise checklist or sample worksheet for tracking multistate projects, I can prepare one tailored to common freelancer workflows.