Working remotely can provide greater flexibility, expand your employment opportunities and eliminate the daily commute. However, working from a state different from where your employer is located — or spending significant time working from a second home in another state — can create unexpected state tax issues.
State tax rules differ considerably, and working across state lines can affect both employees and employers. If your remote work arrangement involves more than one state, it’s important to understand how those rules may apply to you.
The Convenience-of-the-Employer Rule
One issue remote employees should be aware of is the convenience-of-the-employer rule. Some states use this rule to determine where an employee’s income is considered earned for state income tax purposes.
If your employer is located in a state that follows this rule and you work remotely from another state, you may be required to file tax returns in both states. Under the rule, days you work outside your employer’s state for your own convenience — rather than because your employer requires you to do so — may still be treated as days worked in the employer’s state.
For example, suppose your employer has an office just across the state border from your home. You could commute to the office, but your employer allows you to work from home because you prefer the flexibility and want to avoid the time and expense of commuting.
In a state that applies the convenience-of-the-employer rule, those remote workdays could potentially still be treated as days worked in the employer’s state.
Generally, a state with an individual income tax can tax all income earned by its residents, as well as income earned within the state by nonresidents. As a result, you could potentially face tax filing obligations in both your home state and your employer’s state.
Domicile and State Tax Residency
Your tax situation can become even more complicated if you regularly work and spend significant amounts of time in two states that could each consider you a resident.
Residency rules vary by state, but factors commonly include your domicile, the amount of time you spend in a state and whether you maintain a home there.
Your domicile is generally your true, fixed and permanent home — the place you consider your primary home and intend to return to. Some states may also consider you a resident if you maintain a home there and spend a certain number of days in the state during the year.
This means it’s possible to be domiciled in one state while also being considered a resident of another state under that state’s rules.
For example, imagine you maintain a permanent home in the state where your employer is located but also own a vacation home in another state. Your employer permits remote work, and you begin spending more than 200 days each year living and working from your vacation home.
The state containing your permanent home may continue to consider you domiciled there. At the same time, the state where your vacation home is located could consider you a resident based on the amount of time you spend there and other residency factors.
If both states impose an individual income tax, you could potentially owe tax on the same income in both states.
Fortunately, a credit for taxes paid to another state may help reduce or eliminate double taxation, depending on the laws of the states involved. However, you could still face a higher overall tax bill if, for example, the state where you spend most of your time has a higher income tax rate than your primary home state.
Remote Work Can Create Employer Tax Obligations
The tax implications of remote work aren’t limited to employees. Employers may also face additional state tax and payroll responsibilities when employees work from different states.
Allowing employees to work remotely from another state may require an employer to register in that state and withhold and remit applicable income and payroll taxes. These requirements can also affect the amount of state income tax withheld from an employee’s paycheck.
In addition, having employees physically working in another state can potentially create tax nexus in that state. Depending on the circumstances, this may expose the employer to income, franchise, gross receipts or sales and use tax obligations.
These additional filing and compliance requirements can increase an employer’s administrative costs and, in some cases, its overall tax liability.
For this reason, some employers limit the amount of time employees can work remotely from another state. An employer may also prohibit employees from permanently relocating to states where the company does not already have employees, registrations or sufficient nexus.
Review Your Remote Work Arrangement Before Making a Change
If you work remotely, don’t assume that changing your work location is simply a matter of taking your laptop to another state.
Before moving or spending an extended period working from another state, check with your employer to confirm that the arrangement is permitted. You should also determine whether the change could affect your state tax residency, income tax filing requirements or payroll withholding.
If you’ve already worked from multiple states during 2026, it may be worthwhile to review the potential tax consequences before the end of the year. Understanding your obligations in advance can help you avoid unexpected tax bills, penalties or filing issues.
Need Help With Multistate Remote Work Taxes?
Remote work can create complicated state tax issues for both employees and employers. Contact us to review your specific work arrangement and determine whether you may have tax or filing obligations in more than one state.
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