The current pandemic has led many people to work from home whether by choice or necessity. The new work arrangement has meant no commute, more time with family and less money on gas. For individuals who work for an out-of-state employer remote work can have unexpected consequences.

Typically employees are taxed in the state where they live or where they earn income. Some states have reciprocity agreements that obligate employees to pay tax only to their domiciled state. Other states allow you to take a credit on your income tax return for amounts withheld and paid to another state.

What if I Work Remotely?

Remote workers face a unique challenge in that some states require tax to be withheld based on the location of the employer, even if the employees do not work or live in that state. This expectation is based on the “convenience rule” which looks at the remote work as being performed for the convenience of the employer. Seven states including, Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York and Pennsylvania have adopted this rule.

Some employees have taken full advantage of the remote situation and relocated to a state other than their employer’s location or where they live. While working from the beach with a drink in arm’s reach sounds great it could lead to other obligations such as paying tax to yet another state and filing a non-resident tax return.

If you decide to work in a state other than your home state, or your normal work state, then be sure to keep record of the days spent as well as retain evidence of your activity there. Not every state has issued guidance on exactly how remote workers will be taxed or what exemptions will be available. It’s a good idea to discuss a move with your payroll department in order to prepare for potential sticky situations before tax time.

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