How do state taxes apply to remote workers?

Remote work has blurred traditional tax boundaries. Which state can tax your pay depends on a mix of residency rules, where you physically perform services, employer location, and state-specific doctrines like “convenience of the employer.” Understanding those rules helps you avoid double taxation, under-withholding, and surprise state tax returns.

The core rules—what typically matters

  • Residency: Most states tax residents on all income, regardless of where it was earned. “Resident” definitions vary—many use an “ordinary residence” test, a statutory day-count (commonly 183 days or similar), or a combination of domicile and statutory residency. Check your state’s definition before assuming tax obligations.

  • Source-of-income (work location): Many states tax income earned for work performed within their borders. If you physically do the work inside State A, State A may assert the right to tax that income even if you live in State B.

  • Employer location and “convenience of the employer” rules: A few states (most notably New York) apply rules that look at whether remote work was performed “for the convenience of the employee” rather than because the employer required it. Under those rules, a nonresident who performs work from outside the taxing state may still be taxed by the state if the employer is located there and the state’s standard applies. States differ widely on this concept.

  • Reciprocal agreements: Some neighboring states have reciprocity or withholding agreements so that cross-border commuters pay tax only to their home state. These agreements simplify withholding but are not universal—always confirm with your state revenue department.

  • Credits for taxes paid to other states: Most states offer a credit to residents for income taxes paid to another state on the same income. The credit mechanics and limitations vary by state and can affect whether you effectively pay double tax.

Why remote workers, employers, and contractors need to pay attention

  • Employees may unexpectedly owe tax to multiple states and need to file resident and nonresident returns.

  • Employers may be required to register for payroll, withhold state income tax, and pay unemployment and other payroll taxes in jurisdictions where remote workers reside or perform services. This creates administrative and compliance costs.

  • Freelancers and independent contractors face source-of-income rules and may need to make estimated tax payments and manage multiple state filings.

In my practice I regularly see clients underestimate employer withholding requirements and end up filing multiple state returns after a move or when working across state lines.

Practical steps to determine your state tax picture

  1. Confirm your state residency status

  • Determine your domicile (the state you intend to make your permanent home) and whether you meet any statutory residency tests in any state where you spent significant time.

  • Document dates of moves and where you physically performed work. Keep copies of signed lease agreements, utility bills, voter registrations, and driver’s license or state-ID changes because states use these to evaluate domiciliary intent.

  1. Identify where you performed the work
  • For remote days, note the physical location where the services were performed. A day working from a second home, a client site, or while traveling may change sourcing.
  1. Review your employer’s withholding setup
  • Ask payroll whether they are withholding based on where you live or where the employer is located. Employers don’t always get this right automatically—especially for remote hires.
  1. Check for reciprocal or special state rules
  • Search your resident and employer-state revenue department sites for reciprocal agreements and special rules (for example, New York’s convenience rule). When in doubt, contact the state department of revenue for written guidance.
  1. Plan for multi-state filings and credits
  • If you owe tax as a nonresident, confirm how to claim a credit from your resident state for taxes paid to another state; understand whether the credit is refundable or subject to limitations.
  1. Budget for tax payments
  • If withholding will be insufficient, plan quarterly estimated tax payments to avoid penalties. Remote work and moves often change your effective withholding rate.

Common scenarios and how states typically treat them

  • Short-term remote work in another state: Many states have de minimis rules or days-count tolerances before asserting tax. Others expect filing for even brief periods if you earned income while physically present.

  • Permanent move mid-year: You will likely file a part-year resident return in your old state and a part-year resident return in your new state, reporting income earned while a resident of each state. Keep documentation to support the change in residency.

  • Remote work for employer in a different state: If your employer is in a state that applies a convenience-of-employer rule, that state may claim tax on wages even if you never set foot there. Conversely, many states will only tax income sourced to their state based on physical work performed there.

Employer responsibilities and nexus issues

Employers should not assume the employee’s payroll setup is simple. Remote employees can create a tax nexus for the employer in the employee’s state. Nexus can trigger:

  • State income tax withholding obligations
  • State unemployment insurance and employer payroll taxes
  • Business registration, payroll tax filings, and potentially corporate tax obligations

If you’re an employer, consult payroll, legal, or tax counsel early when hiring remote staff across state lines. See our article on Remote Worker Nexus: Complying with Multi-State Tax Rules for additional guidance: https://finhelp.io/glossary/remote-worker-nexus-complying-with-multi-state-tax-rules/

Documentation checklist (what I recommend clients keep for 3+ years)

  • Calendar or time logs showing where you performed work each day
  • Lease agreements, closing statements, and utility bills
  • Change-of-address confirmations, voter registration, driver’s license or state ID updates
  • Payroll records and W-4 or state withholding forms submitted to your employer
  • Copies of state tax returns filed (resident, nonresident, part-year)

Common mistakes and how to avoid them

  • Assuming a no-income-tax state (like Florida or Texas) completely eliminates state filing obligations. If you earn income sourced to another state or remain a resident of a state with income tax, you may still owe tax.

  • Relying solely on employer withholding. Payroll departments can misapply rules; verify withholding is set up for the state where you actually perform work.

  • Failing to document your move or days worked in each state. When states audit residency or sourcing, contemporaneous records are the most persuasive evidence.

When to get professional help

  • Your work stretches across multiple states in the same tax year.
  • You moved mid-year and want to change your state tax home.
  • You receive an unexpected state nonresident return or tax notice.

A tax practitioner experienced in multi-state issues can model likely tax liabilities, recommend withholding adjustments, and help assemble documentation. In my practice I often prepare a short memo clients can use to update payroll and to support residency claims if a state questions a change.

Helpful resources and where to look

  • IRS — general federal tax guidance and links to state resources: https://www.irs.gov
  • Consumer Financial Protection Bureau — consumer-facing tax and financial planning resources: https://www.consumerfinance.gov
  • State revenue department websites — each state publishes residency, withholding, and nonresident guidance. Search your state’s Department/Division of Revenue or Taxation for the most current rules.

Also consult these related FinHelp guides for deeper reads:

Final takeaway

Remote work makes state tax compliance more complex but manageable. Identify where you are domiciled, track where you physically perform services, confirm how payroll is withholding, and consult a multi-state tax practitioner when the stakes are material. Proper documentation and early planning normally prevent double taxation and reduce audit risk.

Professional Disclaimer: This article is educational and does not constitute legal, tax, or accounting advice. For advice specific to your circumstances, consult a qualified tax professional or your state taxing authority.

Authoritative sources: IRS, Consumer Financial Protection Bureau, state revenue departments (check your state’s official website for specific statutes and administrative guidance).