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How do taxes work for remote employees

Remote work has changed how people think about taxes. In the past, filing was more straightforward: you worked and lived in one place. Today, things are not so simple. If you live in one state but work remotely for a company in another—or even from a different country—you may owe taxes in more than one place.

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Illustration of a remote worker at a desk with a laptop, surrounded by tax-related icons like a calculator, money, and documents, symbolizing remote work tax obligations.

Written by

Ontop Team | Sep 25, 2025

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The key point is this: remote work taxes depend on where you live, where you physically perform the work, and where your employer is located. This guide explains the rules step by step, helping employees and employers understand their responsibilities.

Understanding the Basics of Remote Work Taxation

In most cases, you owe taxes in the state where you physically work [1]. This makes sense because you are using that state’s services and infrastructure.

But some states use the “convenience of the employer” rule. Under this rule, you may still owe taxes to your employer’s state even if you never go there. These states argue that you are working remotely for your own convenience, not because your employer requires it [2].

For companies with employees across different states or countries, this can create major compliance challenges. Platforms like Ontop help employers manage taxes and payments across jurisdictions, reducing risk and simplifying payroll.

State Tax Implications for Remote Workers

The Convenience Rule

States such as New York, Connecticut, Delaware, and New Jersey apply the convenience rule. If you live in Pennsylvania but work remotely for a New York company, New York may still tax your income if your remote work is considered a personal choice [3].

New Jersey adopted a similar rule in 2023, even applying it retroactively. This means remote workers may face tax bills from states they did not expect.

Multi-State Tax Scenarios

If you work in more than one state, here is what usually happens:

Resident state: Taxes all of your income because you live there.
Work state: Taxes income earned while you worked within its borders.
Tax credits: Most states offer credits so you are not taxed twice on the same income.
Reciprocal agreements: Some states have agreements to avoid double taxation entirely [2].

Federal Tax Considerations

Federal taxes remain the same for remote employees. If you are a U.S. citizen or resident, you must file a federal return on your income no matter where you work [4].

Home Office Deductions

Self-employed or contractors: You may qualify for home office deductions.
W-2 employees: Generally cannot claim this deduction under current law [5].

International Remote Work Taxation

Working from another country makes taxes more complex:

U.S. citizens abroad: Must still report and pay taxes on worldwide income [6].
Tax treaties: Reduce or remove double taxation between countries.
Foreign tax credits: Allow you to apply taxes paid abroad against your U.S. liability.
Permanent establishment: Employers risk creating a taxable presence in a foreign country if they have remote employees there.

Employers often use Ontop to manage compliance and payroll across more than 150 countries.

Employer Tax Obligations

Employers face significant tax responsibilities with remote teams.

Payroll Taxes

Employers must withhold and pay:

State income taxes where the employee works
State unemployment insurance contributions
Workers’ compensation as required by each state [7]

Nexus and Business Taxes

Hiring a remote employee in a new state can create nexus, or a taxable presence. This may require the company to:

Pay corporate income taxes in that state
Register for sales tax
File additional state reports and registrations

Understanding federal vs. state income tax is essential for compliance.

Best Practices for Remote Work Tax Compliance

For Employees

Keep accurate records of where you work.
Review your employer’s policies on remote work.
Consult a tax professional for multi-state or international work.
Keep receipts and documentation in case of an audit.

For Employers

Create clear policies on where employees can work.
Register for state tax obligations where employees perform work.
Use payroll software that supports multi-state compliance.
Consider professional tax services or global platforms like Ontop.

Common Mistakes Remote Workers Should Avoid

Believing you only owe taxes where you live.
Ignoring short-term work in another state. Even a few weeks can trigger tax obligations.
Overlooking local city or county income taxes [8].

Remote Work Taxes in 2025 and Beyond

The rules around remote work taxes continue to evolve:

States are creating new laws to capture tax revenue.
Federal lawmakers are debating whether to standardize rules [9].
Global compliance is becoming more complex as international hiring grows.

Employers who want to expand globally must pay attention to local tax laws and payroll compliance. Many rely on platforms like Ontop to reduce risks and stay compliant.

Frequently Asked Questions About Remote Work Taxes

Where do I owe taxes as a remote employee?
You typically owe taxes in both your state of residence and the state where you physically work.

What is the convenience of the employer rule?
It is a state rule that requires you to pay taxes to your employer’s state if you work remotely for personal convenience.

How do multi-state taxes work?
You may need to file in both your resident state and work states, but tax credits and agreements help avoid double taxation.

Do federal taxes change for remote employees?
No, federal taxes work the same as before.

Can I claim a home office deduction?
Only if you are self-employed or a contractor. W-2 employees usually cannot.

What about international taxes?
U.S. citizens must report worldwide income, but tax treaties and foreign credits can help reduce double taxation.

What mistakes do remote workers make most often?
Not tracking work locations, ignoring temporary work in other states, and forgetting about local tax requirements.

How can employers manage compliance?
By setting policies, registering in each state, using payroll software, and working with compliance platforms like Ontop.

Conclusion: How to Handle Remote Work Taxes

Remote work gives flexibility, but it also creates tax challenges. Employees need to know where they owe taxes, while employers must manage payroll and compliance in multiple jurisdictions.

By tracking work locations, seeking professional advice, and using tools like Ontop, both employees and employers can stay compliant and avoid costly mistakes.

Remote work is here to stay. With proper planning, taxes don’t have to be overwhelming.