General Question

Carly's avatar

What state do you pay taxes to if you work at home, but are employed by a company in another state?

Asked by Carly (4555points) June 19th, 2013
20 responses
“Great Question” (0points)

I’m considering a job that is typically based in MA, but I’ll be working and living in MO.

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Tropical_Willie's avatar

The company address on your pay stub, is where you are taxed from if you get a W-2 at the end of the year. If you are a contractor and the 1099 form is the tax form issued by the company than it is where you work from ( Missouri ).

geeky_mama's avatar

I work from home in MN, but my company is based in California. I pay MN State taxes (and my company takes them out of every paycheck for me). At least for my company (it’s pretty large and they have lots of remote workers) this was a non-issue.

marinelife's avatar

You pay taxes in the state you are living in. Your employer can take out the right amount for Missouri or if you are a contract employee you will have to set it aside.

augustlan's avatar

You always pay taxes to the state you live in. If you are an employee, and your employer can’t take taxes out for your home state (some small companies won’t), you’ll have to file for a refund from the company state and file to pay the taxes in your state.

If you’re a contractor, your “employer” won’t take taxes out at all, and you’ll have to pay them to your state yourself.

hearkat's avatar

The laws vary depending on what states are involved. You have to file taxes in both states. Your employer typically withholds the taxes for the state in which you work. your residential state will have special places on their forms to indicate that your wages were earned in another state. Check the websites for each state – I’m confident that you’ll find the information specific to your situation.

augustlan's avatar

@hearkat You actually don’t have to file in both states if your employer withholds and pays taxes to your home state. Many large companies will do this, and it’s a common occurrence in ‘border’ areas where people are very likely to live in one state and work in a neighboring one.

SadieMartinPaul's avatar

@Carly Please don’t rely on the misinformation provided in this message thread. PM me, and I’ll be happy to help you. (Why listen to me instead of other people? Because I’ve been a tax CPA for 30 years.)

augustlan's avatar

@SadieMartinPaul It would be great if you could give the correct answer publicly. It may help someone in the future. :)

Ron_C's avatar

I worked for a company headquartered in Canada and with an administrative office in Georgia. I worked primarily in Pennsylvania and had an office at the customer’s site in a city 12 miles from my home. I paid U.S. federal taxes, they paid my state and city taxes in my home city. My check was deposited, monthly, a bank in Georgia to my bank in Pa.

I was taxed as if I worked in the city of my residence.

hearkat's avatar

@augustlan – living in a small state with two major cities (NYC, Philadelphia) just over our borders, many people in our state work in another state. The keyword in your comment is “large” relative to the companies that will invest in multi-state withholding. Small, local businesses are trying to skim expenses wherever they can these days, so I don’t think the practice is all that common unless the corporation is a multi-state or international entity.

@SadieMartinPaul – I’ve gotta back up Auggie on this, and I’m no Moderator. If you’re an expert in an area, please share your expertise with the collective – that’s what Fluther is all about. Of course, the OP can discuss personal specifics via PM, but some general advice would be beneficial to who have an interest in the topic posed by this thread.

@Carly – I just re-read your OP, and the job is based in MA (Massachusetts), but you’re in MO (Missouri)? Those two states don’t border each other, so your situation is different than what many of us mention. I am guessing that a company that hires people in different states like that is prepared to withhold taxes for the state where you reside.

Adirondackwannabe's avatar

@Carly Your wages are taxed in MO where you earned them. I took a quick look at MA’s website but it wasn’t clear. If you have “MA source income” it’s taxable in MA and you need to file a nonresident return. I’m guessing it would not be considered MA source income. What state is listed on your W-2?

augustlan's avatar

@hearkat You’re probably right about small businesses in today’s economic climate. In the past, we’ve had several small employers who were willing to withhold for the resident state, and some who weren’t. I used to live in MD where many people work in VA, DC, or WV, and now live in WV, where many people work out of state, too. When they don’t do it, we have to file non-resident tax returns to the company’s state (to get a refund) and resident tax returns to our home state (to pay them). It’s a pain in the ass, for sure.

SadieMartinPaul's avatar

Ok…you guys have convinced me.

The general rule—income is taxable in its state of origin. In the case of earned income, this means where the labor is performed. Example: If you live in New Jersey, but your office is located within New York, you’ll need to file a NY nonresident return and pay NY taxes on your salary or wages.

The exception—some states have reciprocal agreements (tax treaties of a sort) that allow earned income to be taxed by the worker’s state of residence, not by the state where the person works. Example: Virginia has a reciprocal agreement with every state with which it shares a border; as a resident of Virginia, I can work in Maryland (or West Virginia or Kentucky…), be taxed by Virginia, and not worry about filing a nonresident return.

The rub—reciprocal agreements apply only to earned income. Example: If you own rental properties in another state, or if you invest in business activities with income sourced elsewhere (e.g. an S corporation, limited partnership, or limited liability company), be prepared for multi-state, nonresident tax concerns.

The bigger rub—companies often hire telecommuters but don’t consider the consequences of placing an employee in a foreign state. A long-distance employee is a physical presence in another state; the employer absorbs that state into its multi-state income tax apportionment formula, and it needs to worry about sales and use tax, personal property tax, unemployment compensation tax, payroll withholding tax, etc. nexus in that far-away place.

A lovely, but often overlooked, general rule—investment income is sourced to the taxpayer’s home state. Example: A Massachusetts resident and taxpayer has interest income from a Minnesota bank account; that income “belongs” to MA, not to MN.

hearkat's avatar

Thanks, @SadieMartinPaul; your first two paragraphs explain what I thought was the case, and you went above and beyond with the additional details. Great Answer!

SadieMartinPaul's avatar

@hearkat Thank you for your kind words. I didn’t mean to seem like such a jerk in my initial response.

augustlan's avatar

@SadieMartinPaul Thanks! “Reciprocal agreement” was just the phrase I was looking for. I didn’t think you were being a jerk at all, btw. :)

Carly's avatar

@SadieMartinPaul I ended up taking the job (I’m now a publication editor who works remotely from home), and it turns out that you, and many others, were right: I’m paying taxes for Missouri, but my employer takes some minimal taxes from my income for the state of Massachusetts.

Thank you so much!

SadieMartinPaul's avatar

@Carly Why is your employer withholding taxes for Massachusetts (even if the amount is minimal)? If you’re telecommuting from Missouri, your company’s Massachusetts headquarters is completely irrelevant to you. The company, itself, has some concerns; you’re an employee based in Missouri, so the company has a physical presence in Missouri and entity-level nexus for various taxes. But, you don’t live or work in Massachusetts. After the end of the year, you’ll need to file as a Massachusetts non-resident to reclaim your withholdings.

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