Remote work is a flexible working arrangement where an employee performs their job tasks in an alternative worksite, rather than at a company facility. Remote workers often work from their homes, co-working spaces, or an alternative location outside of the area where commuting to the agency’s worksite is possible. The freedom of remote work can raise many questions about taxes — including where they should be filed and who is responsible for withholding income.
How are Remote Workers Taxed?
Like any other workers, remote workers are taxed at the federal, state, and local levels — depending on where they are based. The employer’s location does not matter with respect to employment taxes. While an employer is typically responsible for paying taxes to the state and local taxing authorities where the company is based, a worker has a tax obligation to their own state. If the employer’s state withholds income for state taxes, a worker may claim a tax credit for the amount paid to the nonresident state to prevent their income from being taxed twice.
New York State applies a “convenience of employer” test to determine how a remote worker’s income should be taxed. Under this test, a nonresident employee’s income is only sourced to their physical location if working remotely is required by the employer. However, if a worker is doing their job remotely for their own convenience, their income could be taxed by the state in which the employer is located.
Whether taxes are withheld by an employer or the remote worker is responsible for paying them depends on the worker’s status. If the remote worker is classified as an employee and receives a W-2 form, the employer will withhold all federal taxes and taxes for the state in which the worker lives. Independent contractors must withhold and pay their own taxes each quarter during the tax year.
What Tax Deductions Can Remote Workers Claim?
Depending on a remote worker’s employment status, a home office deduction may apply. For example, independent contractors who receive a 1099 form can write off part of their home office expenses and other job-related expenses. The amount of the home office deduction depends on the size of our home and the percentage of your home you are using as a business space.
Examples of other expenses that can be written off by freelancers can include:
- Advertising costs
- Phone bills related to work
- Business mileage
- The costs of work supplies
Contract workers must retain a copy of all receipts and keep detailed records regarding these expenses if an audit should occur.
The home office deduction is not applicable to W-2 workers. However, employees may ask their employers to reimburse them for office expenses, co-working space, and other out-of-pocket costs in connection with doing their jobs. It would then be the employer’s responsibility to claim the deductions for themselves.
Contact an Experienced New York Tax Attorney
Understanding your tax obligations as a remote employee or an employer with a remote workforce can be complex. It’s best to have the counsel of a knowledgeable tax attorney who can advise you and ensure you remain compliant. Brinen & Associates offers guidance to individual clients, employees, and business owners regarding a variety of tax matters at both the state and federal levels. Call (212) 330-8151 or send us a message to learn more about how we can assist you.