Background

The growth of remote and app-based work increased cross-border gig income. States still tax income sourced to them and many tax residents on worldwide income, so multistate gigs often create multiple filing obligations. In my practice I see two common drivers of trouble: not tracking where work occurs and assuming a single-state filing covers all income.

How multistate taxation works (the basics)

  • Residency: Your resident state taxes your worldwide income. If you live in State A, you generally report all income there.
  • Source rules / nonresident taxation: States tax nonresidents on income earned inside the state (commonly where services are performed or where the customer is located for certain types of work).
  • Credits: Most resident states give a credit for taxes you paid to other states to avoid double taxation—read your state’s rules carefully.
  • Employee vs. contractor: Employees typically have state and federal payroll taxes withheld by their employer (see IRS Publication 15). Independent contractors owe self-employment tax (Schedule SE) and handle their own estimated taxes (see IRS Self-Employed Individuals Tax Center).

Practical steps for gig workers

  1. Track location by job. Log dates, city/state where work was performed, and payment for each gig — include virtual work where state sourcing rules matter.
  2. Allocate income to states. Use your records to split gross receipts to the state where the work was performed. This is the basis for nonresident returns and withholding reconciliation.
  3. Pay estimated taxes quarterly. If you expect to owe federal or state tax not covered by withholding, make quarterly estimated payments to avoid penalties. The IRS and many states base penalties on underpayment of estimated tax.
  4. Check withholding and employer obligations. If you are an employee working in multiple states, your employer may need to withhold for the state where you perform work. For contractors, there’s generally no employer withholding; you’ll pay estimated taxes yourself.
  5. Claim credits or file part-year/resident returns. When you’re taxed by multiple states, file the required nonresident and resident returns and claim credits on your resident return for taxes paid to other states when allowed.

Examples (short and actionable)

  • Delivery driver who crosses state lines: Track miles, shifts, and payments per state. File nonresident returns where income was earned and a resident return at home; claim credits where available.
  • Remote freelancer living in a no-income-tax state (e.g., Texas) but with clients in California: Texas won’t tax the income, but California may tax income sourced to work performed for California clients. You’d typically file a California nonresident return for the income attributable to California work.

Who is affected

Independent contractors, platform workers (rideshare, delivery), freelancers, gig-based employees who cross state borders, and remote workers with clients in other states. Even online work can create state tax obligations when states apply sourcing rules to services.

Important strategies and tips

  • Use a job-level ledger (spreadsheet, app) that records date, location, client, and pay for every gig.
  • Automate estimated tax reminders each quarter and reconcile withholding vs. liability before year-end.
  • Consider electing a tax home or changing business structure only after consulting a CPA—entity choices can change payroll and income tax outcomes.
  • If you frequently work in a few states, learn each state’s nonresident sourcing and credit rules. See FinHelp’s guide on how to calculate and pay estimated state taxes for multistate earners for step-by-step help.

Common mistakes to avoid

  • Assuming remote equals home-state tax only. Several states tax remote services provided to in-state clients or sourced to the state.
  • Not documenting where work took place. Without records, the burden to justify allocations is harder during audits.
  • Ignoring payroll withholding rules when an employer misapplies withholding (employees may need amended W-4s or payroll corrections).

Payroll-specific notes

  • Employers generally withhold state income tax where the employee performs services; employers may also have withholding or unemployment tax nexus where the employee works. See IRS Publication 15 for federal payroll guidance and your state’s withholding rules.
  • Misclassification risk: If you are treated as an independent contractor but meet your state’s employee tests, payroll tax liabilities and penalties can follow. Review classification guidance and, when in doubt, consult a tax professional.

Short checklist before filing

  • Do I have records that show where each job was done?
  • Did I allocate income to each state where I worked?
  • Did I make estimated payments where needed?
  • Am I filing resident and required nonresident returns, and claiming credits for taxes paid to other states?

Frequently asked questions (brief answers)

Q: Do I always file in every state where I work?
A: If a state taxes income you earned there, you must file either a nonresident return or meet that state’s de minimis exemption. Check state rules for minimum filing thresholds.

Q: How do I avoid double taxation?
A: File a resident return claiming a credit for taxes paid to other states when your resident state allows it. Keep documentation of taxes paid to other states.

Q: Who pays payroll taxes if I’m a contractor?
A: As a contractor you pay self-employment tax (Social Security and Medicare) via Schedule SE; an employer withholds payroll taxes only for employees.

Professional disclaimer

This article is educational and not a substitute for personalized tax advice. State tax rules vary and change; consult a CPA or tax attorney for your specific situation. In practice, early record-keeping and periodic reviews with a tax professional significantly reduce audit risk and surprises.

Authoritative sources

  • IRS, Self-Employed Individuals Tax Center (irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center)
  • IRS Publication 15 (Employer’s Tax Guide) and Schedule SE guidance (irs.gov/forms-pubs)
  • Consumer Financial Protection Bureau and Tax Foundation analyses on state tax trends (consumerfinance.gov; taxfoundation.org)

Related FinHelp guides

If you want, I can create a checklist template you can use to track multistate gigs throughout the year.