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How Payroll Taxes for Remote Employees Work

Remember, choosing which of these to go with is not necessarily about choosing the easiest or most convenient for both parties. The local laws need to be taken into account in order to determine which type of remote worker relationship will work. As we have said, U.S-based businesses cannot employ workers that live in other countries directly.

Portuguese businesses will benefit, and so will the country’s tax base — even without taxing the income or payroll of the remote employees. As you read, you will gain a solid understanding of payroll taxes for remote employees, as well as factors employers should consider before navigating employee payroll taxes. Our goal is to provide you with an overview of how payroll taxes for remote employees work, so you can avoid stress and maintain compliance.

Mastering taxes for remote employees and companies

This is common in cities such as Portland, Chicago, El Paso, Washington D.C., and New York City. This prior guidance linked above is effective until June 30, 2021 (“End Date”). The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Speak with a tax accountant or CPA to navigate this changing area of the tax law. Make sure you and your employer are clear and in agreement on where you will be performing your work.

I work remotely for an out-of-state employer. Do I need to file taxes in two states?

If your state and your employer’s state both have income tax, you should be prepared to file state tax returns for both states. You’ll file as a resident for the state where you live, and if taxes are withheld by the work state, you’ll file a nonresident return for the state where you work.

Different states have different approaches for when they expect you to tell them about income you earned while there. All states have different approaches for when they expect you to tell them about income you earned while there. You can learn more about home office deductions and deducting business expenses by visiting those IRS links when you’re done here. However, your home state may offer you a tax credit once you let them know that you worked in other states as well. Where you worked also plays a significant role in your tax situation, especially when you work remotely. Sign up for these easy-to-use tools, and you’ll be breezing through payroll without cutting corners.

Employees who live out of state and work from home

Payroll and HR managers are responsible for withholding payroll taxes for remote employees, regardless of where they are working. They do this by using W-4 withholding forms that employees fill remote work taxes out before their hire dates. A permanent remote worker will file their personal income taxes in their state of residence, whether they are a W-2 employee or a 1099-NEC independent contractor.

Canadian Payroll Services is a professional employer organization that helps foreign companies hire Canadian remote workers through employer of record services. Working remotely can have a big impact on how and when you file taxes. Understanding the nuances of worker classification, province of employment and province of residence, and taxes when you work remotely isn’t easy. Canadian Payroll Services delivers payroll and employee leasing services that uncomplicate remote work and taxes.