How Are Remote Workers Taxed

Posted by Sheena Allen in TaxesFebruary 14, 2022(Last Updated December 2, 2022)5 min read
Key Takeaways
  • The COVID-19 pandemic saw a rise in remote workers. The remote job search for many people has increased due to the pandemic.
  • Although working remotely has its advantages, one main disadvantage is the possibility of getting double-taxed if the state of residence of the company and worker differ.
  • Depending on the type of remote worker, their tax process differs; follow the steps below to file taxes properly. 
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At the start of the COVID-19 pandemic, many were trapped inside their homes with nowhere to go. In addition, due to the lockdowns imposed by the government, many were unable to go into their place of work. Consequently, many companies began allowing employees to work from home to continue earning money and help the company’s operations. 


Why More Companies Are Hiring Remote Workers


As the pandemic continued and the government slowly lifted the lockdown restrictions, many of those who worked remotely had a positive experience and enjoyed working from home full time. Thus, due to the positive feedback received from the employees, many companies decided to keep remote jobs and began offering them as an option for new hires.



Benefits of Working Remotely


When working from home, countless benefits come into play, which makes the employee want to continue working from the comfort of their home. 


Dress Code


When working most office jobs, there is a particular dress code that all employees must follow. However, the more strict the dress code implied on the employees, the more difficult it is for them mentally, as the strict dress codes could lower morale.


However, there is no dress code when working from home, unless the employee has to partake in a business-setting Zoom meeting. However, once the session is over, the employee is free to return to wearing whatever clothes they wish. The freedom over what an employee can wear can help boost their morale and productivity.




The most significant advantage of working from home is removing commuting to work. On average, the American worker typically spends around 26 minutes commuting to their place of work. The long commute can mentally affect one’s mood and could cause a hindrance in their productivity.


As a result, by working from home, the employee removes the time spent commuting to and from work, allowing them to sleep longer, leading to a better state of mind and working better. 


Increased Productivity


Lastly, due to the reasons listed above and many more, working away from the office space allows the employee to work more efficiently. For example, in a survey done by the Bank of Montreal (BMO) back in 2013, it was determined that 65% of their remote employees had increased productivity. 



Therefore, when corporations allow employees to work from home for a long-term period, they allow their workers to increase productivity due to the benefits posed by the factors eliminated that involve working in an office. 


Disadvantages of Working Remotely


Although working from home allowed remote employees to enjoy a change of scenery when working, the outcomes were not all positive, as there are certain disadvantages. 


Potential Loss of Motivation


The first disadvantage of long-term remote work is it could lead to loss of motivation. Working remotely may lead an employee to lose motivation as their work may become viewed to them as redundant after a while. The redundancy in one’s may cause them to lose motivation, hindering their productivity and work performance.


No Supervision


One of the main reasons employees rarely slack off when working in an office space is due to the supervision from their supervisor and managers. Consistent supervision allows the employee to have similar work output and efficiency levels.


However, when working from home, the employees are by themselves, and there is no one higher in their corporate hierarchy looking over them. Thus, this may cause them to slack off by taking too many breaks or using company time for personal reasons.


Lack of Human Interaction


Lastly, the most significant disadvantage posed by working remotely is the lack of human interaction. When working in an office environment, typically, there are many employees around that one can talk to, which can help them mentally reset when working for a prolonged period of time. 


Although remote teams help interact with others, they do not provide the same level as physical interactions. Therefore, employees may take many breaks throughout their shift due to the lack of physical human interaction. Furthermore, employees who lack human interaction have been proven to have lower productivity levels.




Although the factors listed above contribute to hindering productivity when working away from the office, arguably, the most significant effect of working from home is regarding the income tax that must be paid when filing your tax returns


How Does Working Remotely Affect Taxes


Though working from home has its advantages and disadvantages, the main drawback is 

when it comes to tax preparation and filing your return. For example, if the company you work for is in a different state than the one you currently reside in, you may be subject to filing two separate tax returns for two different states.



Although there is an employment tax on your gross income, the taxed amount may not be enough to cover the taxes outstanding, and it may result in you having to pay out of pocket for the remainder. However, if you fail to pay the due amount in 120 days, you are subject to a penalty and interest on the unpaid amount. 


Fortunately, some states have a reciprocity agreement with other respective states. If your place of residence and place of work differ, you only have to pay and file one set of tax returns, and you specify which state you wish to pay taxes for in your W2. 


If you wish to know which states have a reciprocity agreement, click here.


Tax Process for Remote Workers


There are two types of remote workers for corporations: freelance and regular remote employees. Depending on the employment status, one’s tax process will differ.


Regular Remote


As a regular employee, if your state of residence and state of work have a reciprocity agreement in place, then only one set of tax returns may be filled out for the tax year. Whichever state you choose to pay taxes towards, it must be specified in your W2.  


However, if your state of residence or work does not have a reciprocity agreement, then you must file two separate state tax returns. Initially, you must disclose all sources of income on the tax return for your state of residence. However, for your state of work, or nonresidential tax return, only the income earned from your place of work is disclosed.


Lastly, most of the time, your state of residence will allow for a tax credit on the amount of taxes paid towards your state of work to avoid getting double-taxed. 




As a freelancer, you are viewed as a business owner under the IRS, and you must file accordingly. Thus, you will be subject to a business tax, as you are a business owner, but this value can be deducted based on the sales taxes for items related to your line of work. Furthermore, you must also file personal income taxes after filing your business taxes.


Life, death, and taxes are the only things guaranteed in life, and it is important that when filing taxes they are done currently. Although working remotely has its own sets of advantages and disadvantages, its tax process is quite tricky and must be done well. Therefore, following the steps outlined above will aid you in your tax return process.

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