All states have tax return filing requirements which relate to residents and nonresidents.
To understand how states tax remote workers, it’s important to understand the general rules related to resident and nonresident workers.
Generally, if you’re a resident, you’re taxed by your resident state on all the income you earn regardless of where it was earned. Generally, if you’re a nonresident, then you’re taxed on income earned while physically performing services in a state.
There are exceptions to this general rule, since a handful of states tax you on the income earned from a company located in their state, even if you were not physically in that state. This is referred to as the “Convenience of Employer” (COE) rule, and we’ll discuss this later.
There are a few situations to consider. You may fall into more than one category.
1. I lived in the state where I worked.
If you're considered a full-year or part-year resident of your state, you'll be taxed on all income earned from any source during your time of residency. Make sure to file the appropriate state return.
2. I worked remotely from the state where I lived.
Generally, states tax income earned for personal services performed while in that state (even if you're a nonresident). This includes remote work for an employer or clients based outside that state if you were physically in the state while doing the work.
Keep in mind, you may be able to claim a credit for taxes paid to another state on your resident return for any income required to be reported in multiple state returns.
3. My employer was based in a state where I did not live or physically work.
If you work for an employer remotely from another state (you never physically work in that state), your employer would not have any requirements to withhold taxes from your wages and you wouldn’t need to file a state nonresident return. Nonresident employees only need to file state returns if they physically work in the state in question, or to get a refund if their employer withholds income tax on wages that were not earned by working in that state.
If your employer didn't withhold taxes and you were a nonresident, you probably don't need to file a return for that state at all unless you otherwise have a nonresident filing requirement.
The following states follow this general remote worker rule: Arizona, Arkansas, California, Colorado, Connecticut*, District of Columbia, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts**, Michigan, Minnesota, Mississippi, Missouri, Montana, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania***, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin
4. My employer is based in state with a “convenience of employer” rule.
If you work remotely, often referred to as Telework, for a company in a COE state, you’re taxed on the income as if you worked there. You must file a nonresident return. You may also file for a credit for taxes paid to another state on your resident return, so you’re not double taxed on the same income.
The convenience of employer rule applies to the following states: Delaware, Nebraska, New York and Pennsylvania***.
*CT applies COE rule only if the taxpayer resident state applies a similar rule for work performed for a CT employer
** MA COE set to expire after 7/11/2023
*** Although Pennsylvania has a COE rule, Pennsylvania does not tax remote workers who only work from a nonresident state. See Telework Guidance for information about Pennsylvania remote workers.