Do Remote and Hybrid Workers Pay More Taxes than On-site Office Workers?

Do Remote and Hybrid Workers Pay More Taxes than On-site Office Workers?

Are IRS Taxes the Same for Remote and Hybrid Workers as In-Person?

Basic tax rules do apply to remote, hybrid, and onsite workers, such as filing status, standard deductions, and qualifying credits.

One of the primary differences between remote/hybrid and onsite workers is that remote/hybrid may be able to deduct home office expenses, such as Internet, software, utilities, and equipment.

Keep in mind that the 2017 Tax Cuts and Jobs Act put a hold on the home office deduction until 2025 for employees who solely receive a paycheck or a W-2 from an employer.

If you receive a W-2 form from your employer, you are probably not eligible to claim work-related expenses as deductions to lower your taxable income.

Are State Taxes Different for Remote and Hybrid Workers Compared to In-Office?

Depending on where the work is performed and the state’s tax laws in which the work is performed, remote workers may be subject to paying state taxes to both their state of residence and the state where their employer is located.

For example, if someone lives in Florida but works remotely for a company operating in Maryland, that person may have to pay Florida and Maryland state taxes.

Hybrid workers will need to determine where they spend more time working–at the office or home. In addition, they may have to file a state tax return for the state they reside in and the state they work in, depending on whether their company operates in another state.

Is Income Taxed Where You Live, Where You Work, or Both?

Income tax is generally based on where a taxpayer resides and where they perform their work. Remote workers may owe income tax in both their resident state and the state where their employer is located.

Of course, remote workers will not owe state income tax on earned income if they live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, or Wyoming.

Alternately, onsite workers almost always pay income tax only in the state in which they work.

How Do Taxes Work If You’re a Hybrid/In-Person Commuter Across States or Remote for a Company in Another State?

Taxpayers commuting across states or working remotely for a company located in another state will have to research each state’s individual tax laws.

Remote/hybrid workers will need to determine how their earned income is taxed according to each state’s laws regarding non-resident income. Some states offer exemptions or credits for income that is taxed in another state. Other states impose income tax on all income earned within the state.

Can You Ever Pay Double Taxes If You’re a Remote or Hybrid Worker?

To eliminate the risk of a remote or hybrid worker being double-taxed, most states have adopted reciprocal agreements with two or more states.

Under a reciprocal agreement, people who work in a state that is not their state of residence can be exempt from paying income tax to the state in which they work. In other words, they will only pay state income taxes to their resident state.

For example, if someone lives in one state and works in another state, and both states have a reciprocal agreement with each other, that person can ask their employer to not withhold state taxes from their income.

In this scenario, the person would just have to file a state income tax return in their resident state.

State reciprocity agreements vary to include unilateral reciprocity that extends to any state capable of reciprocating, and policies that exclude commuters from nonresident income tax.

Currently, 16 states have reciprocal agreements with each other:

  • Arizona
  • District of Columbia
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Maryland
  • Michigan
  • Minnesota
  • Montana
  • New Jersey
  • North Dakota
  • Ohio
  • Pennsylvania
  • Virginia
  • West Virginia
  • Wisconsin

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