If your employer is located outside of the state where you performed remote work in 2023, you could face double taxation. Being a hybrid worker can also leave you feeling stuck.
With the onset of the pandemic, many employees worked remotely for the first time. Post-pandemic, hybrid work schedules have become more prominent and have tax implications.
Last year, 12.7% of full-time employees worked remotely and 28.2% had a hybrid work schedule.
State income tax rates range from a low of 2.5% in Arizona to a high of 13.3% in California. But even if you live in a state that doesn't have an income tax, you could still be charged taxes if you commute to a state that does.
Here are some other scenarios you may face as a remote or hybrid worker, and what you can do about it.
Double taxation due to the “employer’s convenience” rule
Some states tax workers in the employer's location based on the “employer convenience” rule, regardless of whether the employee lives in the state.
“If your employer is located in one state and you, as a remote worker, live in another state, six states have 'special employer accommodation' provisions,” says Garrett, Tax Foundation analyst. Watson previously told Yahoo Finance. Those states are Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania.
If your employer is based in one of these states, but you work out of state for convenience, you will be subject to double taxation in the state where you live and the state where your employer is domiciled. There is a possibility.
Mandy R. Lyles, tax manager at WIPFLI, said, “Due to the facility provision, individuals may end up paying state income tax on more than 100% of their earned income due to the loss of out-of-state deductions on their state resident tax returns. “There is,” he said. she said in her article.
Some taxpayers may be able to avoid double taxation through state reciprocity agreements.
read more: What is taxable income?
national reciprocity agreement
Some states have reciprocal agreements with neighboring states to help residents avoid double taxation. Reciprocity agreements allow workers to be taxed once in their home state.
“For example, if you live in Quincy, Illinois, and work in Davenport, Iowa, Iowa has a reciprocity agreement with Illinois, so Iowa does not tax that income and all taxes are It will take place in the workers' home state of Illinois,” Tom Oseven, registered agent and director of tax content for the National Association of Tax Professionals, told Yahoo Finance.
According to the Tax Foundation, 16 states have reciprocity agreements with neighboring states. These are Illinois, Indiana, Ohio, Michigan, Wisconsin, Iowa, Minnesota, Kentucky, Virginia, Pennsylvania, Maryland, New Jersey, West Virginia, Montana, North Dakota, and the District of Columbia.
Even if your state doesn't have a reciprocity agreement, you may be required to file taxes in two states, although you may be provided with a credit for taxes paid in another state.
Let's say you're a hybrid employee who works in St. Louis, Missouri, and lives in Illinois.
“When this happens, Illinois residents pay taxes to Missouri, where they work, and Illinois taxes that same income, but the taxes they paid to Missouri are taxed by Illinois,” Oseven said. “It will be deducted up to the state amount.” Double taxation should be avoided as the same income will be taxed. ”
Even if you have to file two state returns, as in the example above, the credit means you won't pay taxes twice on the same income.
read more: How bonuses are taxed (and why it matters)
What if I have a hybrid or remote workforce?
“Check with your company's human resources department to see if there are additional state withholdings for non-resident states,” CPA Janet Klotchman told Yahoo Finance. “In that case, especially if you know you'll get a full refund or credit from your state, you can create a W-4 form for her in another state to minimize other state withholding. please.”
To determine if you are subject to double taxation if you live in one state and work remotely or hybridly in another state, or if your state has a reciprocity agreement with a neighboring state. It is best to consult a tax professional.
If you can't afford a tax professional, but you earned less than $60,000 last year, are disabled, elderly, or have a language barrier, you can still get free tax preparation services with Volunteer Income Tax Assistance .
Rhonda Lee is a senior personal finance reporter at Yahoo Finance and an attorney with experience in law, insurance, education, and government. Follow her on X @writesronda
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