If the employee lives and works in different states and those states do not have a reciprocal agreement, the employee will have to file two tax returns, one for each state. Employees in this category will only have taxes withheld for one state. Some states have reciprocal agreements stating that employees only have to pay tax in the state where they live, no matter whether they are doing so for necessity or convenience. However, some states follow a “convenience of the employer” rule that treats days worked at home as days worked at the employer’s location if the employee is working remotely for their own convenience and not the employer’s necessity. The core question is: Which state does the employee pay income tax to: the state where they live or state where their employer is located? In most states, a remote employee must pay taxes wherever they reside. With hybrid work arrangements becoming a feature of the new workplace, employers should be very deliberate when they communicate and execute policies relating to an employee’s work location. In general, there is a difference between employees who work remotely because of their employers’ necessity and those who do so for their own convenience. Along with the many challenges this created in the workplace, the most important issue is how remote workers pay state and local taxes. When COVID-19 began, no one envisioned how long remote work would last or if people would want to continue working remotely permanently.
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