Remote Work and Multi-State Withholding Requirements

Once upon a time, people went to work.  While they were at work, they pretty much stayed in one city, and probably even one building.  Life was simple.  Get up, go to work, get a paycheck, file taxes, repeat.  Bah-dah-boom, bah-dah-bing.  Then, life took an unexpected turn.  Yes, I’m talking about the Coronavirus pandemic, for anyone who isn’t following me.  The strange thing is, while it seems like life shut down a lifetime ago, it isn’t really a thing of the distant past.  In actuality, we’ve only been living this way for 7 months.  Nevertheless, our new way of life has created change in us, with one change being our sudden desire to get out of dodge.  So, due to our recent nomadic tendencies, we are suddenly facing multi-state withholding requirements.

If you aren’t familiar with multi-state withholding requirements, you’re in the right place to learn more.  After all, it’s not like you have anything better to do with your time, right?  So, here is the 411 on these withholding requirements, so you can be sure you are doing at least one thing right (because I know you aren’t seriously washing your hands for 20 seconds each time you touch a doorknob).

Jealous of Your Withholding Requirements

Image of a woman looking envious of multi-state withholding requirements.
Subtle Envy | by Craig Loftus | Source

Ok, I’ll be the first to admit that the reason I sound like I have a chip on my shoulder is because I am a little jelly.  If you are reading this, it’s probably because you shook the dust off your crummy little town and went somewhere to work from “home.”  Good for you.  Now that you are in a land far away from Boredomville, you are busy Zooming, Teaming, and Housepartying like you were born with an iPhone in your hand.  Meanwhile, you don’t ever change your background to some pre-fab customized image, because you already have the actual backdrop of the beach or the mountains.  You hope people will notice you’re somewhere cool, and, believe me, they do.  Do you know who else notices?  Yep, that’s right—the state tax collectors.

So, there you were thinking you were being so sly, working with a cold “beverage” in your Yeti.  Whatever you are drinking is the least of anyone’s concern, but your taxes will become your own worst nightmare real fast if you aren’t careful.

Pay Attention to Your Multi-State Withholding Requirements

That got your attention, didn’t it?  Good. 

So, let’s discuss what you should have researched before you high-tailed it out of your corona hot spot.  Of course, you did your due-diligence making sure you had a secure Wi-Fi connection and delivery access from local eateries.  However, you can’t pretend you actually Googled, “What are the tax ramifications for working remote in Montana?”  Nope.  Zip it.  You didn’t.  That picturesque mountain view in Whitefish doesn’t have quite the same brilliance now, does it?

Withholding Requirements You Need to Know

First of all, you should know that there are states where you immediately owe the state income tax upon working there for a day.  True story.  Other states are friendlier, and won’t tax you at all. I’d make friends with the friendly states, if I were you. Take Florida, for example. If you have a waterproof computer, you can do your work floating on a raft 30 yards off the beach, and you don’t have to worry about taxes or COVID.

Second, you could be taxed on two or more states simultaneously.  I know what you’re thinking, “But, I mean, isn’t that, like, double-jeopardy?”  Well, as comparisons go, I suppose so.  Still, the states get away with it.  Kind of like what Matthew McConaughey finagled in the trial in The Lincoln Lawyer.  He just stuck it to ‘em, and the states will stick it to you.

Third, there are a handful of states that won’t tax you if you are temporarily relocating due to the pandemic.  These states include Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina.  Still, don’t bank on this being permanent, and remember to continue to check withholding requirements as time goes by.

Finally, it’s possible that you could get a tax credit for paying taxes to one or more other states.  Check to see if the states you are working in offer a reciprocity agreement, and that you are doing what’s necessary to meet multi-state withholding requirements.

How They Know You’re Working Remotely

So, do you know what auditors are like?  Well, imagine this:  They are greying, doughy, with round, flushed cheeks, and they check that list twice.  Yeah, I guess the image I painted is a bit like Santa Clause, except you can swap the jolly smile for a judgy frown.  Also, instead of bringing gifts, they take away the money you planned to use to buy gifts.  Anyway, they know whether you’ve been naughty or nice, so trust me—they will find out if you have relocated for work.  They will check to see if you’ve been sleeping on your withholding requirements.

If you don’t believe me, just test your luck.  Remember how you’ve been calling people from Vail, posting selfies from your “office” in Gulf Shores, and logging into your computer to grind out some business in Ann Arbor?  Well, auditors can track all that, and more.  Your credit card purchases will tell on you, too.  Just remember this:  the interwebs have eyes, and they are watching you.  So, keep an eye on those multi-state withholding requirements to stay on Audit Clause’s good side.

Tracking Your Remote Workdays

Although you are probably thinking you are the only one in the world right now feeling a little guilty about your predicament, know that you are not alone.  In fact, there’s nothing really special about you, because the multi-state withholding requirements issue has actually been a problem for a long time.  You just happened to ride the cool wave into Uh-Oh Town, and now you will pay the price.

Nevertheless, there are things you can do to help minimize the worry.  For example, be diligent about tracking your remote workdays.  If you’ve ever tracked mileage, then you should know how to do this.  It’s like riding a bike.  Just jump on and start pedaling.  Or, you could use an app to help track your movements.  That’s like riding a scooter.  Just jump on and pull back the handle.  No sweat involved.

Automating Multi-State Withholding Requirements

The moral of the story here is that if you are going to be moving around during this pandemic, just plan to face social backlash.  Oh, wait…  That’s a different blog. 

The actual moral of the story is that if you are going to be moving around during this pandemic, be prepared to pay taxes to multiple states.  In fact, just plan to automate the process, and accept it as part of your new life. Our federalist system grants permission to individual states to decide how they will tax you, and, oh, they will tax you whenever and however they can. So pay attention to the withholding requirements for each state you are working in, even if you are only working via your computer.  That still counts.  After all, you can’t have your tax cake and eat it, too.

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This is not meant to provide legal counsel or advice. Every situation is different. Please contact an HR professional or employment attorney before taking any action.

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