Your first step is clarifying your employment status within the company – are you an employee or a contractor? There are strict rules that determine whether a worker should be classified as an employee or a contractor, for example, a contract has the right to set their own work schedule and rates of pay. How to handle remote taxes as a remote employee This puts the tax implications on the worker rather than on the company.Ī third option is to hire through an EOR, which we will cover in more detail below. For this reason, it is very common for companies to hire international remote workers as contractors instead. As such in order to hire international remote workers, a company will have to open a local branch in the necessary country.ĭoing this can often be very time-consuming and costly. companies are not allowed to hire full-time employees from overseas directly. Hiring full-time international employees comes with its own set of challenges. The current list of states with no income tax is – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. That being said, each state has its own rules about what taxes are due, and some states have no income tax at all which means you only need to think about the federal tax. owe both income tax and payroll tax, so you will have to pay taxes in both the state you live in and the state you work in (or where your employer is based).įor example, if the company is based in North Carolina, but the employee lives in New York then the employer will need to register for taxes in both states. To help, let’s break down some of the key factors you need to be considering when looking at your taxes as a remote worker or company. It’s no wonder that remote workers can get lost trying to work it all out. If you work outside of the US entirely then you will have local tax laws to follow too. Then there is the understanding of state taxes vs federal taxes. With remote work taxes, you need to consider so many different things, including your location, where the company is based, and where you do most of your work. Remote employees today need to prepare to take ownership of their own bookkeeping and taxes no matter what state or country they are in. Unfortunately, this setup makes it a little bit more difficult for remote employers and employees that are aiming to stay legally compliant. More often than not, the best way to hire someone remotely is through a contracting agreement, but what does this mean when it comes to taxes? These states currently include Connecticut, New York, Pennsylvania, Arkansas, Delaware and Nebraska.Īs "If you are in Michigan "for the convenience of the employer" - that is, because your employer wanted you there rather than in New York - then your wages would be taxable in Michigan." It is reasonable to presume your employer is aware of NY rules and has concluded you are working in MI for their convenience.Today, the biggest disadvantage that remote companies and employees face is the lack of protection under domestic employment laws. It is a long-standing principle that an employee's wages are taxable in their state of residence and in the state where they perform their work. Since you performed the work in MI and are a resident of MI, then your wages are definitely taxable by MI.Ī minority of states, however, utilize convenience of the employer (COE) rules to determine how nonresident remote employees should be taxed on their income. Boxes 15-17 only refer to MI, not NY), then file your MI return and don't worry about NY. Don't try to overanalyze this - if your employer is reporting your W-2 earnings as "MI" sourced (ie.
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