Out-of-State Employment and Remote Work: Tax Residency Confusion

With the current state of remote working challenging the retirement of the traditional office environment, the employees and employers of North America and Western Europe are now entering a new era: tax residency perplexity. The recent change of jobs, or relocation lifestyle or family reasons, may appear an easy task, but actually can cause complicated tax matters with longer-term, money effects.

This blog will decipher the major issues involved in working in a remote company out of state and provide an understanding of how an individual and a company can avoid a possible tax trap. One can seek tax lawyers in Los Angeles or in other parts to get help.

1. What Is Tax Residency and Why Does It Matter?

Tax residency will be used to determine the state or country that is entitled to tax your income. Whereas the federal income taxes in the United States are the same, state taxes differ tremendously.

Some states, such as California and New York, have a high state tax, whereas others, such as Texas and Florida, do not have one. In case of remote workers, the jurisdiction in which you reside and where the employer resides may lead to the overlapping of taxes.

The same problems occur in Europe when workers live in one place and work in another EU member state. In both scenarios, the lack of tuition tax residency may cause either a double tax or impose fines, or leave unused credits.

2. The Rise of Remote Work and State Revenue Concerns

States are becoming ever more hostile towards monitoring the location of workers. This has led to multi-state battles of tax in the U.S, and states are not willing to lose taxable earnings. As an example, New York has even reached out to employees working physically in other states, and yet the employer was in New York itself and claimed its taxes.

This has resulted in key cases in court (e.g., New Hampshire v. Massachusetts, which ignited round-the-country arguments over the jurisdiction of government power. The concern? States are considering taxing your income depending on the location of your employer rather than your presence in that particular location.

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3. Common Triggers for Tax Residency Confusion

There can be a number of situations when tax problems occur without the realization of employees:

• Residing in one state and working somewhere in another state with the company
• Pandemic-induced temporary relocation without being updated in residency status
• Keeping up a house or voter enrollment in an earlier state
• Income and ownership of assets across many jurisdictions

Most workers have the attitude that they should merely relocate to another state. But terminating residency is not merely a physical move-in most cases, the bodily movement is followed by and requires termination of all domiciliary ties with the previous state. A San Francisco tax attorney can help in such situations.

4. Case Study: California’s Long Arm of Tax Law

The state of California is infamous for going after former residents aggressively. The state can also possibly keep taxes on your income even when you depart as long as you still have substantial attachments, including a home, driver’s license, or are still operating a business.

Relocators that work remotely in Nevada or Arizona usually believe that they no longer pay taxes to California, only to be greeted by contracted audit efforts of the Franchise Tax Board in California, asking the taxpayer to prove they have indeed changed domicile.