![]() Generally, your client must file a return if their gross income from outside the US is at least the amount shown for their filing status in the Filing Requirements table in Chapter 1 of Publication 54, Tax Guide for U.S. According to the IRS, if your client plans to work outside of the country, they are generally required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as they would in the United States. The tax issues that face Americans living out of the country can be complex, so you should encourage your client to consult with a tax professional in the country in which they are living. Even then, your client may still have to pay taxes in another state based on residency or a convenience rule-another reason why it’s important to encourage your client to consult a tax professional. 3 Remember, however, that if your client is planning on taking advantage of a no income tax state, they will probably have to make it their domicile, taking up more permanent residency there. On the other end of the spectrum, nine states (AK, FL, NV, NH, SD, TN, TX, WA, and WY) don’t impose a state income tax at all. Three states-California, Hawaii, and New Jersey-impose a top marginal income tax rate over 10%. When it comes to income taxes, not all states are equal. Most people will consider more than just taxes when deciding where to live, but taxes can still be an important conversation with your client when it comes to their financial planning. 2 Picking the best state from which to work remotely Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania impose some form of convenience rule, so it’s important to go over this with clients living or working in these states. When this happens, the state in which the business is located can tax the income of the employee and may result in double taxation. These tax rules can apply when an employee resides outside of the state in which the business is located, not because of a business need, but rather for the “convenience” of the employee. 1Īnother issue to watch out for is whether the company your client works for is based in a state with a convenience rule. In this scenario, they would likely have to file an income tax return, and possibly pay income taxes in both states. Let’s say your client was domiciled in one state but decided to work remotely from another state for more than six months. For example, many states consider you a resident if you spend more than half the year there. This is usually where the client holds their drivers’ license and is registered to vote.īut even if your client is domiciled in one state, they can still be considered the resident of another state for state income tax purposes. The easiest way to explain domicile is the place where you actually live. What if your client lives and works in a different state from where their employer is located? In general, they will pay state income taxes based on their state of domicile, residence, or possibly both. Remember, clients should always consult with a tax professional for personal advice. Below, we will discuss how tax issues and considerations can affect your client as a remote worker. Depending on your client’s individual circumstances, working remotely can have serious income tax implications to consider. Even though many people are now returning to the office, some of your clients may never work in a traditional office environment again. People who never really imagined working remotely suddenly realized that it was a viable option in their careers. In recent years, we have witnessed an explosion in remote work-many people worked remotely pre-pandemic, but COVID-19 was like pouring gasoline on a campfire. In addition to employee tax implications, remote work can potentially require more effort from employers themselves when it comes to tax withholding rules.Your client’s tax rates will be dependent on many factors as a remote worker, including state of residence, where their employer is located, and whether they are located primarily in the US or abroad. ![]() It should come as no surprise that there are unique tax implications for your client to consider as a remote worker.
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