Why this matters

Remote work has made state residency a central tax issue. Which state is your tax home affects where you file, whether you owe state income tax, and how you claim credits for taxes paid to other states. Misclassifying your residency can trigger double taxation, penalties, and time-consuming audits. In my experience advising remote employees, the problems I see most often stem from weak documentation and misunderstanding of state-specific rules.

The three core residency tests states use

States generally apply one or more of the following tests to decide residency for tax purposes:

  • Physical presence (day-count) test: Many states use a 183-day rule—if you spend more than half the year in the state, you may be treated as a resident. But the exact threshold and how “days” are counted can differ by state.

  • Domicile test: Domicile is your permanent home — the place you intend to return to and remain. Courts and tax agencies look at your intent plus objective ties: where you keep your primary residence, voter registration, driver’s license, family location, and where you spend holidays.

  • Statutory residency: Some states combine a day-count with domicile or a maintained residence test. For example, you may be treated as a resident if you maintain a residence in the state and spend a statutory number of days there, even if your legal domicile is elsewhere.

Note: Not every state uses every test. Always check the rules for the states involved.

(For an accessible primer on related concepts, see our glossary entry on Tax Home.)

Common state-specific rules remote workers must know

  • New York’s “convenience of the employer” rule: New York can treat income as New York source income if you work remotely for your own convenience rather than out of necessity, and your employer’s business is in New York. This can cause nonresidents who telecommute from other states to still owe NY tax on wages. See New York State Department of Taxation and Finance for details: https://www.tax.ny.gov/pit/ (search “convenience of the employer”).

  • States with strict day-counts: Several states will count any part of a day spent working in-state as a full day for residency or sourcing. Rules for travel, commuting, and short-term assignments vary; confirm the counting rules in each state’s tax guidance.

Because rules differ, a remote employee working for a firm in State A while living in State B must analyze both states’ laws—not just one.

How states treat income when you work remotely for an out-of-state employer

There are two separate but related concepts:

  1. Residency (which state is your tax home). If State B considers you a resident, it can tax all your income, wherever earned.
  2. Source taxation (which state can tax specific earned income). State A where the employer is located may tax income earned there, or under rules like New York’s, on wages paid for services benefiting an in-state employer.

Example: A software engineer lives in Florida (no personal income tax) but works remotely for a New York employer. If New York’s sourcing rules apply and the engineer is deemed to have New York-source wages, New York may tax that income even though the engineer’s domicile is Florida. Conversely, if the engineer is domiciled in Florida and doesn’t meet New York’s residency or sourcing rules, Florida (with no state income tax) governs the tax outcome.

Real-world remote-worker scenarios and how to analyze them

  • Telecommuter who moved states mid-year: Pro-rate residency. You may be part-year resident in two states and must file accordingly.
  • Digital nomad who spends months in multiple states: Track days meticulously—each state will consider your presence differently. Several states will treat you as a resident if you have a permanent place there and spend the statutory days.
  • Employee who keeps a home in State A and works from State B: State A could argue you remained domiciled there if you maintain strong ties (family, voter registration, driver’s license, bank accounts).

In practice, I advise clients to run a simple test: list days in each state, list the strongest ties (home ownership, family, job), and then map those facts against each state’s published guidance or court decisions.

Documentation checklist (what to keep and why)

States expect objective evidence. Keep this documentation for at least three years; many audits examine multiple prior years:

  • Day log or calendar showing the state where you worked each day (phone location logs and timesheets are helpful).
  • Lease agreements or property deeds.
  • Utility bills and mail with your name and address.
  • Voter registration and driver’s license changes.
  • Employer telework policies and written confirmations about where you’re expected to work.
  • Travel receipts and tickets for business trips that took you out of your claimed state of residence.

Well-organized records make a strong case for your intended tax home and reduce audit risk.

How to establish or change your domicile

Domicile is about intent plus action. Key steps that demonstrate a change of domicile include:

  1. Move your household and belongings to the new state.
  2. Get a driver’s license and register to vote in the new state.
  3. Update your address for federal withholding, bank accounts, and retirement accounts.
  4. File a declaration of domicile if your state allows it.
  5. Transfer professional licenses and primary physician relationships.
  6. Spend a majority of your time in the new state and inform employers and clients of the location change.

Do these consistently for a year or more when possible; short-term moves leave your position vulnerable to challenge.

For legal steps on formal residency planning, see our article on Residency Planning: Legal Steps to Change Your State Tax Home.

How audits and disputes typically play out

Auditors look for inconsistencies: a driver’s license in State A but a home and family in State B is an audit flag. Common triggers include:

  • A high volume of income reported to a state where you have few ties.
  • Employer withholding in a state different from your claimed residence.
  • Repeated multi-state filings without clear documentation.

If audited, present the record described above and be prepared to explain your intent and actions. Consider hiring a state tax specialist—audits often hinge on persuasive factual narratives and documentation.

Practical strategies to reduce dual taxation risk

  • Keep a contemporaneous day log (electronic or paper). Courts and agencies value contemporaneous records more than reconstructed logs.
  • Update official documents quickly (driver’s license, voter reg, bank address) after relocating.
  • If you work remotely for an employer in a state with aggressive sourcing rules (e.g., New York), get a written statement from your employer about whether work is performed for the employer’s convenience or necessity.
  • Use reciprocity agreements if they exist between states (some neighboring states exempt commuter wages for residents of the other state).

Specific filing tips

  • File part-year resident returns when you move mid-year. Allocate income to each state for the period you were a resident there.
  • Claim credits for taxes paid to another state when allowed. Most states provide a credit to reduce double taxation, but rules vary.

Sources and further reading

Final checklist before you file

  • Have you documented the days you worked in each state?
  • Do official documents (license, voter reg, lease/deed) support your claimed domicile?
  • Are employer withholding and state filings aligned with your residency claim?
  • Do you have a plan and records in case of audit?

Professional disclaimer

This article is educational and does not constitute legal or tax advice. State tax law is fact-specific. Consult a qualified tax professional or state tax authority for advice tailored to your situation.