Remote Job - Taxes

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Dynasty90
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Remote Job - Taxes

Post by Dynasty90 »

My wife is interviewing for a 100% remote position with a small company. Things are looking positive and we anticipate a job offer being presented soon.

My question is: Do we have to pay out of state and local taxes in addition to our residence's state and local taxes? The company is headquartered is in Connecticut and we reside in Ohio.

This is something we both do not have experience with.
Blake7
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Re: Remote Job - Taxes

Post by Blake7 »

Have you checked online for the tax agencies for both States? I’d be very surprised if that topic isn’t covered, and you want a de facto source for something like this.
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FiveK
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Re: Remote Job - Taxes

Post by FiveK »

If she gets the offer, she could ask the company if they will be withholding tax for Ohio only, or for Ohio and Connecticut.
VaR
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Re: Remote Job - Taxes

Post by VaR »

It's a small company so they may not do things correctly, but if your wife is 100% remote, then at my company she would be considered having performed work in the state of Ohio and they would have to pay her as an Ohio employee. Note that this may not apply if she is expected to work in Connecticut but will be temporarily working from home in Ohio due to COVID-19.

I am neither a CPA nor a tax attorney, so I'm sure others can chime in with more definitive answers.
international001
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Re: Remote Job - Taxes

Post by international001 »

IT's a little bit like international taxation. You have to pay in both states. You pay taxes where you work, but then you can take a credit for where you live. To avoid double taxation.

Make sure you do your taxes right. I would hire a CPA at least the first time.

And it seems like some states have agreements so only pay on your residence state, but this doesn't seem to be your case

https://www.thebalance.com/state-with-r ... ts-3193329
life in slices
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Re: Remote Job - Taxes

Post by life in slices »

FiveK wrote: Wed Sep 09, 2020 11:32 pm If she gets the offer, she could ask the company if they will be withholding tax for Ohio only, or for Ohio and Connecticut.
That's good advice.

For what its worth, I have been 100% remote for the past 25 years (sales) living in Massachusetts solely for that time. The companies I have worked for have been in different locations within the U.S. and I have only been taxed within MA and not been taxed by the state in which my employer is located.
Spirit Rider
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Re: Remote Job - Taxes

Post by Spirit Rider »

Prior to COVID-19, only AR, CT, DE, NE, NY and PA had a "convenience of the employer rule.". MA implemented a COVID-19 emergency order for people employed in the state prior to COVID-19 and switching to telecommuting. It is based on the headquarters of the employer. Telecommuters for employer's headquartered in those states are subject to that state's income taxes for that income.

This means you will be subject to CT income taxes and your employer will almost certainly withhold CT income taxes. If you are lucky OH will give you credit for the CT income taxes and you will only pay any excess OH tax liability to OH.
PaunchyPirate
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Re: Remote Job - Taxes

Post by PaunchyPirate »

It will depend on how the company sets things up. You should check with them.

For years, I was a remote worker in PA for a California-based company. I never had to file California taxes. The employer withheld PA and Local (city/township) taxes appropriate for my location in PA. I filed PA taxes. However, I'm sure the employer had to set up a presence in PA for this to happen.... State tax IDs and such. PA has a complicated local tax system and the employer abided by it with proper local tax zone identification on my pay stubs and W2s. They had offices in PA cities, but I was 150 miles from the closest one. All those people only paid PA taxes. But, If the new employer isn't willing/able to do this type of tax administration work (perhaps they are required to?) then I would not expect the system to work like it did for me.

As a side note, around 2016, this same employer set up our time-card reporting system so that we had to identify what state we worked in for each time entry. It seemed that if I worked 2 weeks on a project in TX that they expected us to report our time as such. However, the company never gave us specific orders that we had to do that. So none of my coworkers did. Our fear was that somehow we'd have to file income taxes in every location we traveled to and worked in during a year. I traveled up to 50% of the time nationwide in 1-10 day trips. That was a rock no one ever wanted to turn over. I reported all my time as worked in PA.
international001
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Re: Remote Job - Taxes

Post by international001 »

life in slices wrote: Thu Sep 10, 2020 5:48 am
FiveK wrote: Wed Sep 09, 2020 11:32 pm If she gets the offer, she could ask the company if they will be withholding tax for Ohio only, or for Ohio and Connecticut.
That's good advice.

For what its worth, I have been 100% remote for the past 25 years (sales) living in Massachusetts solely for that time. The companies I have worked for have been in different locations within the U.S. and I have only been taxed within MA and not been taxed by the state in which my employer is located.
IF you counted as working in state X you would have been withhold taxes in state X.
My guess is that you counted to be working in MA

counting to work on a given state I guess is the tricky part, but it should be specified in your contract
Spirit Rider
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Re: Remote Job - Taxes

Post by Spirit Rider »

international001 wrote: Thu Sep 10, 2020 1:23 pm IF you counted as working in state X you would have been withhold taxes in state X.
My guess is that you counted to be working in MA

counting to work on a given state I guess is the tricky part, but it should be specified in your contract
Did you not read my post? It is not tricky at all.

If the company you are telecommuting for is not headquartered in one of the six states I listed plus MA during the pandemic and you have not met any physical premise tests in a given state, you are not taxed by any other state than your own.
AnEngineer
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Re: Remote Job - Taxes

Post by AnEngineer »

Spirit Rider wrote: Thu Sep 10, 2020 7:01 am Prior to COVID-19, only AR, CT, DE, NE, NY and PA had a "convenience of the employer rule.". MA implemented a COVID-19 emergency order for people employed in the state prior to COVID-19 and switching to telecommuting. It is based on the headquarters of the employer. Telecommuters for employer's headquartered in those states are subject to that state's income taxes for that income.

This means you will be subject to CT income taxes and your employer will almost certainly withhold CT income taxes. If you are lucky OH will give you credit for the CT income taxes and you will only pay any excess OH tax liability to OH.
How do they differentiate between someone telecommuting to one of these states to someone who works alone in another state?

Also, what if you physically worked to an office in OH for a company headquartered in CT and are now telecommuting? This sounds like you suddenly owe CT taxes.
Jefferson
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Re: Remote Job - Taxes

Post by Jefferson »

You said it is a small company. Right or wrong, they may not be willing to handle taxes for any other state.
usedtoplayrugby
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Re: Remote Job - Taxes

Post by usedtoplayrugby »

I am the CEO of a start-up that employees 6 people in WA, GA, and TN. We pay taxes to the home state of the employee (for payroll) but for goods sold we pay sales tax to WA state as that is where we are headquartered.

Somewhat aside, but newer HRIS / Payroll software like Gusto is actually quite good at helping employers sort this all out and pay the right taxes. When we onboard remote employees we use their home address as their work location (assuming that they work at home and not a separate location) and then withhold payroll taxes based on their home location.
THY4373
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Re: Remote Job - Taxes

Post by THY4373 »

I have teleworked for years and my employer collects taxes for the state I reside and work in. However, another employee I know works in a state where my employer is not setup to withhold taxes so he has some crazy situation where they withhold taxes in the state where he used to work for them in the office and he has to personally pay estimated taxes in his current state. Then he files taxes in both states and requests a refund from his former state where the employer has been withholding. This is a very large and financially sophisticated employer so I assume this is all correct given the circumstances.
Spirit Rider
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Re: Remote Job - Taxes

Post by Spirit Rider »

AnEngineer wrote: Fri Sep 11, 2020 8:09 am How do they differentiate between someone telecommuting to one of these states to someone who works alone in another state?
It is called the; "convenience of the employer" rule. If you must be located in that state, because you are servicing customers in that state. E.g. you are a field service engineer. You are considered at tax resident of that state.

If you are located in a state solely for the convienence of the employer and you could be located in any state, you are presumed by one of those states as a tax resident of the state where your employer is headquartered.
Also, what if you physically worked to an office in OH for a company headquartered in CT and are now telecommuting? This sounds like you suddenly owe CT taxes.
If you work at your employer's physical location in OH, it doesn't matter where your employer's headquarters is. This is standard employment. Many people work for an employer headquartered in another state. You would be taxed in OH.
AnEngineer
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Re: Remote Job - Taxes

Post by AnEngineer »

Spirit Rider wrote: Fri Sep 11, 2020 11:35 pm
Also, what if you physically worked to an office in OH for a company headquartered in CT and are now telecommuting? This sounds like you suddenly owe CT taxes.
If you work at your employer's physical location in OH, it doesn't matter where your employer's headquarters is. This is standard employment. Many people work for an employer headquartered in another state. You would be taxed in OH.
That's not quite what I'm asking about. My question is about people working at home.

Do you have a reference for these rules?
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FiveK
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Re: Remote Job - Taxes

Post by FiveK »

AnEngineer wrote: Sat Sep 12, 2020 8:16 am
Spirit Rider wrote: Fri Sep 11, 2020 11:35 pm
Also, what if you physically worked to an office in OH for a company headquartered in CT and are now telecommuting? This sounds like you suddenly owe CT taxes.
If you work at your employer's physical location in OH, it doesn't matter where your employer's headquarters is. This is standard employment. Many people work for an employer headquartered in another state. You would be taxed in OH.
That's not quite what I'm asking about. My question is about people working at home.

Do you have a reference for these rules?
Teleworking Employees Face Double Taxation Due to Aggressive Policies might be of interest to you.
j0nnyg1984
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Re: Remote Job - Taxes

Post by j0nnyg1984 »

I live in WA, work for a company based in IA. I pay WA taxes, including, of course, no state income tax. The company I directly work for has no presence in WA, though one of our parent companies subsidiaries does.

I would definitely not pay any taxes based on where your company is located.
international001
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Re: Remote Job - Taxes

Post by international001 »

Spirit Rider wrote: Thu Sep 10, 2020 11:59 pm
international001 wrote: Thu Sep 10, 2020 1:23 pm IF you counted as working in state X you would have been withhold taxes in state X.
My guess is that you counted to be working in MA

counting to work on a given state I guess is the tricky part, but it should be specified in your contract
Did you not read my post? It is not tricky at all.

If the company you are telecommuting for is not headquartered in one of the six states I listed plus MA during the pandemic and you have not met any physical premise tests in a given state, you are not taxed by any other state than your own.
Tx.. but help me understand
Assume employer has headquarters in state A, offices in state B, you used to work in state B and then you move to state C and telecommute from there (no employer presence in state C). In which state do employer convenience rules apply, A or B?
international001
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Re: Remote Job - Taxes

Post by international001 »

THY4373 wrote: Fri Sep 11, 2020 11:03 am I have teleworked for years and my employer collects taxes for the state I reside and work in. However, another employee I know works in a state where my employer is not setup to withhold taxes so he has some crazy situation where they withhold taxes in the state where he used to work for them in the office and he has to personally pay estimated taxes in his current state. Then he files taxes in both states and requests a refund from his former state where the employer has been withholding. This is a very large and financially sophisticated employer so I assume this is all correct given the circumstances.
Just curious about your co-worker. What does it mean not 'setup to withhold taxes'. Other poster (usedtoplayrugby ) seems to imply they can do it with just 6 employees?
The former state will refund all the taxes, right? Is something they would ask any special proof of, or it would be easy to do?
international001
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Re: Remote Job - Taxes

Post by international001 »

Apologies. This is for the case where you actually physically commute to another state to work.
qwerty123
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Re: Remote Job - Taxes

Post by qwerty123 »

PaunchyPirate wrote: Thu Sep 10, 2020 7:25 am For years, I was a remote worker in PA for a California-based company. I never had to file California taxes. The employer withheld PA and Local (city/township) taxes appropriate for my location in PA. I filed PA taxes. However, I'm sure the employer had to set up a presence in PA for this to happen.... State tax IDs and such. PA has a complicated local tax system and the employer abided by it with proper local tax zone identification on my pay stubs and W2s. They had offices in PA cities, but I was 150 miles from the closest one. All those people only paid PA taxes. But, If the new employer isn't willing/able to do this type of tax administration work (perhaps they are required to?) then I would not expect the system to work like it did for me.
I work at a very small company, and this is exactly how it's done for me. I only pay taxes in the state I reside, and my understanding is that the business had to register in the state that I live in.
Spirit Rider
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Re: Remote Job - Taxes

Post by Spirit Rider »

international001 wrote: Sat Sep 12, 2020 7:16 pm Tx.. but help me understand
Assume employer has headquarters in state A, offices in state B, you used to work in state B and then you move to state C and telecommute from there (no employer presence in state C). In which state do employer convenience rules apply, A or B?
A, but only if state A is one of the six states plus MA (during the pandemic emergency).
AnEngineer
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Re: Remote Job - Taxes

Post by AnEngineer »

Spirit Rider wrote: Sat Sep 12, 2020 9:50 pm
international001 wrote: Sat Sep 12, 2020 7:16 pm Tx.. but help me understand
Assume employer has headquarters in state A, offices in state B, you used to work in state B and then you move to state C and telecommute from there (no employer presence in state C). In which state do employer convenience rules apply, A or B?
A, but only if state A is one of the six states plus MA (during the pandemic emergency).
My understanding of the MA rule is that if it is state B they expect to get paid.
Spirit Rider
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Re: Remote Job - Taxes

Post by Spirit Rider »

AnEngineer wrote: Sat Sep 12, 2020 10:09 pm My understanding of the MA rule is that if it is state B they expect to get paid.
I forgot about the MA special provision. Only there is no move required.

For example, you live in NH which has no income tax and work in MA. Pre-pandemic you were taxed in MA, because that is where you are deriving the wages. Now that you are working from home they didn't want to lose that tax revenue and issued an emergency order.

If you were telecommuting from NH prior to the pandemic (I don't know what date they are using). You would continue to not be taxed except to the extent of days worked in MA.
international001
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Re: Remote Job - Taxes

Post by international001 »

So it's B for MA, but A for the other 6 states?
tjf9
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Re: Remote Job - Taxes

Post by tjf9 »

My understanding of the way it *should* work is that your employer needs to register in the state where you live in order for you to provide services for them while permanently residing in that state. Then you would be taxed according to here you live (where you are working) not where the company is headquartered.

At one large company I used to work at, they did not want to register in certain states, so I was not allowed to hire anyone who lived in those states as remote workers. At the company I work at now, they are much more accommodating. If for some reason they are not currently registered in a state under my specific LLC, they will do so to facilitate hiring an employee in that state.

Small companies don't always know/follow the rules, so YMMV.
international001
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Re: Remote Job - Taxes

Post by international001 »

Ok.. I didn't know about this 'registration' . I guess it may be paperwork and money. So a company may just have to pay withholding for one state and the employee will have to do the both tax returns to fix it.

Out of curiosity, how would it work if you decide to telework from Canada?
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queso
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Re: Remote Job - Taxes

Post by queso »

tjf9 wrote: Sun Sep 13, 2020 5:30 pm My understanding of the way it *should* work is that your employer needs to register in the state where you live in order for you to provide services for them while permanently residing in that state. Then you would be taxed according to here you live (where you are working) not where the company is headquartered.

At one large company I used to work at, they did not want to register in certain states, so I was not allowed to hire anyone who lived in those states as remote workers. At the company I work at now, they are much more accommodating. If for some reason they are not currently registered in a state under my specific LLC, they will do so to facilitate hiring an employee in that state.

Small companies don't always know/follow the rules, so YMMV.
This. I am currently dealing with this now due to the pandemic and our evolving stance on telework. We have folks that have been teleworking since March and we're looking at embracing permanent telework so have briefed our employees on the current state of affairs as well as our intention to try to sublet some of our existing space and embrace telework post-pandemic. One of the first types of questions we started to get was about relocating permanently to other states (both of our offices are located in HCOL/VHCOL areas with the requisite nasty commutes). When we started looking into it there are some bizarre registration and tax implications involved, but the short of it is that we (the company) have to "do stuff" for each state and pay/file taxes in those states if we let employees permanently relocate there. Some states are more onerous than others so for now we're taking a "let's not do that yet, but we're thinking about it" approach. We don't want to get in a situation where we tell some employees it is ok to move because, for example, they want to go to TX and TX is easy and tell others no because they want to go to CA and CA is a PITA. Trying to balance what people want to do vs. what makes the most sense from a company standpoint. In the long run it may benefit us to just do it across the board since it will open up hiring in cheaper labor markets that we can take advantage of for future remote hires, but don't tell the finance/accounting department I said that since they are the primary ones bristling at the additional filing/paperwork/taxation requirements.
Last edited by queso on Mon Sep 14, 2020 9:16 am, edited 2 times in total.
Topic Author
Dynasty90
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Re: Remote Job - Taxes

Post by Dynasty90 »

Original poster here - My wife accepted the offer and brought his up to HR. They stated they only withhold taxes where the employee resides (Ohio).

I will most likely files 2020 taxes using a CPA this year to be safe. Thank you all for your replies.
hachiko
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Re: Remote Job - Taxes

Post by hachiko »

international001 wrote: Mon Sep 14, 2020 9:06 am Ok.. I didn't know about this 'registration' . I guess it may be paperwork and money. So a company may just have to pay withholding for one state and the employee will have to do the both tax returns to fix it.

Out of curiosity, how would it work if you decide to telework from Canada?
Depending on your position and the company's footprint they may tell you to return to your home country or let you go. There can be very bad consequences for companies who have certain types of employees present in other countries.

Same thing applies with other states too, it's just less common since many large enough companies already have nexus and are filing income and/or sut returns with large and aggressive states. It's not just about "the company doesn't want to do the extra paperwork to withhold." Your presence in a state could cost the company hundreds of thousands of dollars in taxes. It is rumored that Amazon had maps in their offices that highlighted states that employees were not allowed to travel to. (this was pre-Wayfair, but it can still apply in some situations /in some states that haven't adopted economic nexus rules)
international001
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Re: Remote Job - Taxes

Post by international001 »

hachiko wrote: Mon Sep 14, 2020 11:40 pm Depending on your position and the company's footprint they may tell you to return to your home country or let you go. There can be very bad consequences for companies who have certain types of employees present in other countries.
But is this a security thing? Or just taxes? Some companys may have presence on Canada, but still the employee with an US contract may decide to telework from Canada, even if he keeps his main address on US

If the company doesn't care, it's the responsability of the employer to pay taxes on Canada and ask for a refund of all the taxes on US? Is that possible?

Same thing applies with other states too, it's just less common since many large enough companies already have nexus and are filing income and/or sut returns with large and aggressive states. It's not just about "the company doesn't want to do the extra paperwork to withhold." Your presence in a state could cost the company hundreds of thousands of dollars in taxes. It is rumored that Amazon had maps in their offices that highlighted states that employees were not allowed to travel to. (this was pre-Wayfair, but it can still apply in some situations /in some states that haven't adopted economic nexus rules)
That's surprising. From other posts, even small companies may have presence in other states. And if they don't employee can just ask a refund of taxes where they are withhold. What would be less work/money than hundreds of thousands

I guess in theory today you have to pay taxes in a state if you just go to work there to travel 1 day, even if in practice most company don't. https://www.pewtrusts.org/en/research-a ... 030%20days.
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