Background

Remote work expanded rapidly after 2020 and exposed gaps between where employees physically perform labor and where payroll or HR systems are set up. In my 15 years helping clients, I’ve seen workers assume their home state controls taxation only to receive surprise nonresident tax bills because of employer withholding or state sourcing rules.

How state rules work (quick overview)

  • Residency: Most states tax residents on all income, wherever earned. ‘Resident’ generally means your domicile (intent to remain) or meeting a state’s statutory residency test. Some states (for example, New York) also apply a 183‑day–style test plus a domicile standard for statutory residency.
  • Nonresidents: States tax nonresidents on income sourced to the state (wages for work performed there).
  • Employer withholding: Employers usually must withhold where the employee performs the work or where state law requires withholding — rules vary by state and employer payroll setup.
  • Credits: Many states allow a credit for income taxes paid to another state to prevent double taxation, but you must claim it correctly on state returns.

(For federal guidance on interactions between state and federal filing, see the IRS state and local taxes overview: https://www.irs.gov/individuals/state-and-local-taxes.)

Key considerations for remote workers

  • Where you live (domicile) versus where you perform work. Domicile is about permanent home and intent; temporary stays don’t always change domicile.
  • Days worked in each state: keep a contemporaneous log. Some states use day counts as a statutory test.
  • Employer payroll setup: if payroll is processed in a different state, that can trigger withholding there.
  • State-specific rules such as New York’s “convenience of the employer” approach, which can tax remote work done outside New York unless the employer requires the out‑of‑state location.

Real-world examples

  • Cross-state telecommute: If you live in New Hampshire (no broad income tax on wages) but work for a Massachusetts employer and perform work in MA, Massachusetts may tax that income and require withholding.
  • Moving to a no‑income‑tax state: Relocating to Florida or Texas can reduce state income tax, but you must sever domicile ties and follow state rules; part‑year residency and final returns still apply.

Who is affected

Employees, contractors, and employers can be affected. Common situations:

  • Employee lives in low‑ or no‑tax state but works for a company in a high‑tax state.
  • Remote employees who split time across multiple states (digital nomads, split‑year movers).
  • Employers who must register and withhold in additional states when employees work remotely from those states.

Practical steps and professional tips

  • Track work location daily (calendar, GPS timestamps, or simple log). Accurate records are the most defensible evidence for days worked in each state.
  • Update state withholding forms promptly (state equivalents of Form W‑4) and inform payroll of your work state.
  • Ask payroll whether they will withhold for your work state; if not, prepare for estimated tax payments.
  • When you move, document the change of domicile (lease or deed, driver’s license, voter registration, utility bills) in case a state challenges residency.
  • Claim credits for taxes paid to another state when eligible; follow the paying state and resident state rules carefully.

For employer and employee withholding checklists, see our guide: “Multistate Withholding for Remote Workers: Employer and Employee Checklists“.

Common mistakes and how to avoid them

  • Assuming no withholding means no tax due — you may still owe and should make estimated payments.
  • Not documenting days worked in other states — without proof, statutory residency or sourcing rules can be enforced against you.
  • Ignoring state‑specific quirks (e.g., convenience rules) — review the taxing state’s guidance.

Frequently asked questions

  • Do I need to file in both states? Possibly. If you were taxed or had withholding in the work state, expect a nonresident return there and a resident/part‑year return in your home state. Many states offer credits to avoid double taxation.
  • What if my employer withholds incorrectly? Contact payroll first to correct withholding; you may need to file to recover overwithheld amounts or pay estimated taxes if underwithheld.

For how to report income sourced to different states, see our article on “Sourcing Rules for Multistate Income: Where to Report Remote Work“.

In my practice

I’ve seen clients who move states mid‑year and forget to update payroll, leaving them with unexpected nonresident tax bills. Proactive communication with HR and a simple daily work log prevents most issues.

Professional disclaimer

This content is for educational purposes and does not substitute for personalized tax advice. State tax rules are detailed and change frequently; consult a qualified tax professional or your state tax agency about your specific situation.

Authoritative sources

(Also see state tax agency guidance for specific rules such as New York’s residency and convenience‑of‑employer discussions.)