Overview
Remote and seasonal workers commonly earn income in more than one state. Multistate tax planning anticipates how states treat residency, source income, withholding and credits so you can legally reduce tax costs, avoid penalties, and simplify filing. In my practice I’ve seen workers save thousands simply by tracking days, adjusting withholding and claiming the correct credits.
(Authoritative guidance: see IRS “State Tax Issues for Employees” for federal-level guidance on state filing responsibilities.)
Why it matters for remote and seasonal workers
States set their own rules for who owes income tax. That means where you live, how long you spend in a state, and where the work is performed can change your tax bills. Two common problems I encounter are:
- Filing surprises: people assume only their home state matters and later get notices from other states.
- Double taxation anxiety: workers worry they’ll be taxed twice; credits and reciprocity agreements often help, but they require correct reporting.
A practical example: a client who lived in Florida (no state income tax) but worked remotely for a New York employer still needed to understand New York’s sourcing and withholding rules to avoid an unexpected state tax liability.
Key concepts to know
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Residency vs. domicile: residency for tax purposes is a statutory status (resident, nonresident, part‑year) that triggers filing rules; domicile is your permanent home for certain legal issues. States differ on how they test residency — look to days‑present tests, ties (driver’s license, voter registration), and intent. (See FinHelp: “State Tax Residency” for deeper detail: https://finhelp.io/glossary/state-tax-residency/)
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Source of income / allocation: wages are typically sourced to the state where work is performed; self‑employment and contract income may be apportioned by where services were delivered.
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Part‑year resident rules: if you move midyear, many states prorate income and withholdings based on the period you were a resident.
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Credits for taxes paid to other states: most states provide a credit to residents for taxes paid to another state on the same income; rules and calculation methods vary.
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Reciprocity agreements: some neighboring states (e.g., PA/NJ, MD/DC historically) let commuters pay tax only to their home state — check state lists before assuming relief. See FinHelp: “Reciprocal State Tax Agreements: What They Mean for Commuters” (https://finhelp.io/glossary/reciprocal-state-tax-agreements-what-they-mean-for-commuters/).
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Employer withholding and nexus: employers sometimes withhold based on the employer’s location rather than your work location. If that happens, you may need to file nonresident returns or request withholding adjustments. (See FinHelp: “How Remote Work Affects State Tax Withholding” for guidance: https://finhelp.io/glossary/how-remote-work-affects-state-tax-withholding/)
Practical multistate planning steps (a checklist)
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Track days and locations now. Use a simple calendar, phone geolocation export, or a time‑tracking tool. Many residency rules use a 30‑ or 183‑day test—accurate records are your best defense.
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Keep contemporaneous work logs. For contractors and consultants, note client location, dates worked, and where deliverables were prepared.
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Review your ties to each state. Keep a list of ties (home, family, driver’s license, voter registration, vehicle registration) and change only when you intend to change domicile.
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Update employer withholding promptly. If you move or work remotely from a different state, ask payroll to update your state withholding elections or complete state withholding forms required by the employer.
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Understand state reciprocity and credits. Before filing, check whether your home state offers a credit for taxes paid to another state or if a reciprocity agreement applies.
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Consider entity and work structure. For business owners, where the entity is registered and where work is performed affects state filing obligations (nexus). For employees, classification (W‑2 vs 1099) matters for where income is taxed.
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Plan moves around the calendar year if possible. Becoming a resident late in the year can reduce the time you owe taxes to the new state.
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Keep receipts for temporary living expenses. Some states allow limited deductions for temporary work travel or moving expenses (rules vary). Always verify state rules before assuming deductibility.
Examples (realistic scenarios)
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Remote employee living in Florida (no state income tax) who works for a New York employer: New York applies sourcing rules for work performed in‑state and, in some cases, uses the employer’s location or the employee’s work location for withholding. The worker may owe New York nonresident tax on days physically worked in New York and should request correct withholding or file a nonresident return.
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Seasonal hospitality worker: Lives in a neighboring state but takes a summer job in a vacation state. They will likely file a nonresident return in the work state for income earned there and report the full year’s income to their home state, claiming a credit to avoid double taxation if allowed.
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Consultant with clients across multiple states: Must allocate business income by state based on where the service was performed. This often requires quarterly estimated payments to multiple states to avoid underpayment penalties.
These examples are simplified—state statutes and administrative rules control the results. Always check the specific state guidance.
Common mistakes and how to avoid them
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Relying on memory instead of records. A day‑count error can trigger residency audits. Keep dated evidence.
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Forgetting to change withholding. If payroll continues withholding for the wrong state, you may have to file and wait for refunds.
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Assuming credits eliminate all double taxation. Credits reduce tax on the same income but won’t cover differences in tax base or timing issues.
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Ignoring local city or school district taxes. Some states have local income taxes (e.g., certain Ohio and Pennsylvania municipalities) that require separate filing.
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Not considering unemployment or retirement income sourcing rules. Income types other than wages can have different sourcing rules.
When to involve a professional
Consult a tax advisor if you:
- Work remotely across multiple states on a regular basis.
- Change domicile during the tax year.
- Receive notices from state tax agencies.
- Run a business with customers or employees in several states.
In my practice, specialized multistate work often requires running hypothetical returns to compare tax outcomes before a planned move. A tax pro can also advise on payroll withholding adjustments and nexus for businesses.
Records to keep (at least 3 years, often longer)
- Day‑by‑day work location log.
- Paystubs showing state withholding.
- Copies of filed state returns and any nonresident return schedules.
- Proof of domicile changes (lease agreements, utility bills, voter registration).
Resources and authoritative guidance
- IRS — State Tax Issues for Employees (general federal guidance on state filing responsibilities): https://www.irs.gov/ (search “State Tax Issues for Employees”).
- Tax Policy Center — research and commentary on state tax policy and cross‑border impacts: https://www.taxpolicycenter.org/
- Your state revenue department website — each state posts residency tests, sourcing rules, withholding forms and reciprocity information (search terms: “residency”, “nonresident withholding”, “reciprocal agreement”).
FinHelp internal guides:
- How Remote Work Affects State Tax Withholding — https://finhelp.io/glossary/how-remote-work-affects-state-tax-withholding/
- State Tax Residency — https://finhelp.io/glossary/state-tax-residency/
- Reciprocal State Tax Agreements: What They Mean for Commuters — https://finhelp.io/glossary/reciprocal-state-tax-agreements-what-they-mean-for-commuters/
- Multi-State Taxation: Rules for a Mobile Workforce — https://finhelp.io/glossary/multi-state-taxation-rules-for-a-mobile-workforce/
Final tips
- Start tracking now — most disputes hinge on day counts and contemporaneous evidence.
- Use payroll to solve withholding problems early rather than relying on year‑end refunds.
- If you plan a cross‑state move for work, run the numbers first: small differences in state rates or credits can make a noticeable annual difference.
Professional Disclaimer: This article is educational and does not replace personalized tax advice. State tax laws change and turn on facts. Consult a qualified tax professional or the relevant state revenue department for guidance specific to your situation.
(Last reviewed: 2025. Sources include IRS guidance and Tax Policy Center commentary.)
