Income in multiple states while working remotely

[starlord]

I work remotely as a software engineer and travel both for business and personal reasons. In 2019, I worked in several different states. The guidance I'm reading here suggests I need to pay nonresident income in each state, excepting:

• states with no income tax
• states with reciprocal agreements with my home state
• states for which my income doesn't meet a minimum threshold, if any

So far so good. But I'd still like to clarify a few points:

1. Does it matter if I worked in the state because it was a business assignment or purely for personal reasons? In most cases, the state I was physically located had nothing to do with the work itself; i.e., I didn't go into an office or anything, basically just used some electricity and internet access.
2. Does it matter if I'm a W-2 employee or 1099-MISC self-employed contractor? (This changed during the year.)
3. Most state revenue service websites specify that I pay taxes on income "from Colorado sources" (for example) or some similar phrase. If I'm working remotely while temporarily in Colorado (say, for a few weeks), is that income "from Colorado sources"? Where I'm able to find a definition for "XXX sources," it usually includes all wages earned in state XXX, suggesting that the answer is yes.
4. Are there any other circumstances under which I don't owe tax to some of these states? Obviously, the fewer state returns I have to file the better.

 

[quincy]

I work remotely as a software engineer and travel both for business and personal reasons. In 2019, I worked in several different states. The guidance I'm reading here suggests I need to pay nonresident income in each state, excepting:

• states with no income tax
• states with reciprocal agreements with my home state
• states for which my income doesn't meet a minimum threshold, if any

So far so good. But I'd still like to clarify a few points:

1. Does it matter if I worked in the state because it was a business assignment or purely for personal reasons? In most cases, the state I was physically located had nothing to do with the work itself; i.e., I didn't go into an office or anything, basically just used some electricity and internet access.
2. Does it matter if I'm a W-2 employee or 1099-MISC self-employed contractor? (This changed during the year.)
3. Most state revenue service websites specify that I pay taxes on income "from Colorado sources" (for example) or some similar phrase. If I'm working remotely while temporarily in Colorado (say, for a few weeks), is that income "from Colorado sources"? Where I'm able to find a definition for "XXX sources," it usually includes all wages earned in state XXX, suggesting that the answer is yes.
4. Are there any other circumstances under which I don't owe tax to some of these states? Obviously, the fewer state returns I have to file the better.

You have started 4 tax threads. Please keep all of your tax questions to a single thread. Thank you.

 

[LdiJ]

I work remotely as a software engineer and travel both for business and personal reasons. In 2019, I worked in several different states. The guidance I'm reading here suggests I need to pay nonresident income in each state, excepting:

• states with no income tax
• states with reciprocal agreements with my home state
• states for which my income doesn't meet a minimum threshold, if any

So far so good. But I'd still like to clarify a few points:

1. Does it matter if I worked in the state because it was a business assignment or purely for personal reasons? In most cases, the state I was physically located had nothing to do with the work itself; i.e., I didn't go into an office or anything, basically just used some electricity and internet access.
2. Does it matter if I'm a W-2 employee or 1099-MISC self-employed contractor? (This changed during the year.)
3. Most state revenue service websites specify that I pay taxes on income "from Colorado sources" (for example) or some similar phrase. If I'm working remotely while temporarily in Colorado (say, for a few weeks), is that income "from Colorado sources"? Where I'm able to find a definition for "XXX sources," it usually includes all wages earned in state XXX, suggesting that the answer is yes.
4. Are there any other circumstances under which I don't owe tax to some of these states? Obviously, the fewer state returns I have to file the better.

If you are only in the state temporarily, for example: on vacation, then you would not file a tax return for that state. If you are working remotely in that state because your employer asked you to do so, on a very short term assignment, Example: A business trip, then again, you would not file a tax return for that state. However, if you are living and working in that state, on a longer term basis, you would either file a non-resident return, or a part year return, depending on various factors including whether or not you maintain a primary residence in your home state.

There is a caveat to that however. Some states (NY in particular) expect you to file a tax return if you earn any income at all while physically present in their state.

 

[Taxing Matters]

So far so good. But I'd still like to clarify a few points:

1. Does it matter if I worked in the state because it was a business assignment or purely for personal reasons? In most cases, the state I was physically located had nothing to do with the work itself; i.e., I didn't go into an office or anything, basically just used some electricity and internet access.
2. Does it matter if I'm a W-2 employee or 1099-MISC self-employed contractor? (This changed during the year.)
3. Most state revenue service websites specify that I pay taxes on income "from Colorado sources" (for example) or some similar phrase. If I'm working remotely while temporarily in Colorado (say, for a few weeks), is that income "from Colorado sources"? Where I'm able to find a definition for "XXX sources," it usually includes all wages earned in state XXX, suggesting that the answer is yes.
4. Are there any other circumstances under which I don't owe tax to some of these states? Obviously, the fewer state returns I have to file the better.

Each state has different tax laws, so you need to check the rules in each state. That said, in general:

1. No, it doesn't matter whether the reason you did the work in that state was because the employer assigned you to do there or you simply chose to do the work there.

2. In some instances it may make some difference. As an employee the state may have a minimum amount of time (e.g. a few days, or whatever) a visiting employee has to work there before the state hits him up for tax. Self employed people might not get the same slack.

3. When it comes to compensation for personal services performed, the basic rule is that the income is sourced where the work was done, not where the person paying for the work was located.

4. Not enough information here to say. It depends on the details of the work you did and the laws of each state.

Note that your home state should either exclude the out of state income that other states are taxing or provide a credit for the tax you pay to other states.

 

[Taxing Matters]

If you are only in the state temporarily, for example: on vacation, then you would not file a tax return for that state. If you are working remotely in that state because your employer asked you to do so, on a very short term assignment, Example: A business trip, then again, you would not file a tax return for that state. However, if you are living and working in that state, on a longer term basis, you would either file a non-resident return, or a part year return, depending on various factors including whether or not you maintain a primary residence in your home state.

There is a caveat to that however. Some states (NY in particular) expect you to file a tax return if you earn any income at all while physically present in their state.

You really have to look at the law of each state where the work was done and the details of what was done. Saying that generally working in state while "on vacation" or on a short business trip may give a misleading impression. Sure, answering a couple e-mails while on vacation someplace isn't going to be a problem. But if you start getting much beyond that, then there may be an issue.

 

[LdiJ]

You really have to look at the law of each state where the work was done and the details of what was done. Saying that generally working in state while "on vacation" or on a short business trip may give a misleading impression. Sure, answering a couple e-mails while on vacation someplace isn't going to be a problem. But if you start getting much beyond that, then there may be an issue.

I think that I indicated that knowing the exact states involved was important. However let me give a more concrete example. Lets say that a company has a regional manager who primarily works in their home state, but once a quarter or twice a year, travels to each of the other states where there are managers under him/her to meet with the managers in person and to take a look at operations. He/she also travels twice a year to the corporate home office for meetings. Would you say that any of the states where those meetings were taking place, would attempt to tax that regional manager's salary for the time they were present?

I don't think that even NY would attempt to do that.

 

[Taxing Matters]

Would you say that any of the states where those meetings were taking place, would attempt to tax that regional manager's salary for the time they were present?

I haven't researched the laws of every state with an income tax to say one way or the other. And given that there are so many states, each with their own laws on the matter, I certainly can't say that no state would tax the salary in that situation.

 

[LdiJ]

I haven't researched the laws of every state with an income tax to say one way or the other. And given that there are so many states, each with their own laws on the matter, I certainly can't say that no state would tax the salary in that situation.

One thing that I can say with certainty, is that in my over 30 years of practice, I have never seen a W2 that reported income that way in that particular scenario. I have seen W2s that report income that way for other scenarios (traveling nurse, people who live in one state and work neighboring state, or sports players etc)

 

[Taxing Matters]

One thing that I can say with certainty, is that in my over 30 years of practice, I have never seen a W2 that reported income that way in that particular scenario. I have seen W2s that report income that way for other scenarios (traveling nurse, people who live in one state and work neighboring state, or sports players etc)

I've seen a lot of companies mess up when it comes to the nuances of state income tax, particularly small and medium sized companies. Because of that, I wouldn't take too much comfort from that.

As to sports players in particular, you bet states hit up pro athletes for the days they compete in a game/match/event in their state and get paid for it, including pro football, baseball, basketball, and hockey players. Consider the this Forbes article written by a CPA who concentrates his practice on tax matters for pro athletes. In it, he notes:

Athletes file taxes not only in their home state but also in every state—and some cities—in which they play. Not every state uses the same calculation to determine what portion of an athlete’s income to tax, and some use different calculations based on the sport. For example, Pennsylvania taxes baseball, basketball and hockey players on the ratio games in the state over total games played, including pre- and postseason, but they tax football players based on days worked in the state over total days worked. Michigan uses the same method but excludes the preseason. Most other states use the days worked method. Arizona uses that method but excludes days worked in the pre-season (otherwise MLB would be shopping for a new spring training home).​

​

And that has been my experience in advising a (not famous) pro athlete, too. When they play games in a lot of different states, they end up having to returns in a lot of different states, too. The star athletes who get paid the really big bucks have no trouble affording a tax pro to do all that. But the ones that are making a lot less, like say a guy on a minor league ball club, find it more challenging.

 

[LdiJ]

I've seen a lot of companies mess up when it comes to the nuances of state income tax, particularly small and medium sized companies. Because of that, I wouldn't take too much comfort from that.

As to sports players in particular, you bet states hit up pro athletes for the days they compete in a game/match/event in their state and get paid for it, including pro football, baseball, basketball, and hockey players. Consider the this Forbes article written by a CPA who concentrates his practice on tax matters for pro athletes. In it, he notes:

Athletes file taxes not only in their home state but also in every state—and some cities—in which they play. Not every state uses the same calculation to determine what portion of an athlete’s income to tax, and some use different calculations based on the sport. For example, Pennsylvania taxes baseball, basketball and hockey players on the ratio games in the state over total games played, including pre- and postseason, but they tax football players based on days worked in the state over total days worked. Michigan uses the same method but excludes the preseason. Most other states use the days worked method. Arizona uses that method but excludes days worked in the pre-season (otherwise MLB would be shopping for a new spring training home).​

​

And that has been my experience in advising a (not famous) pro athlete, too. When they play games in a lot of different states, they end up having to returns in a lot of different states, too. The star athletes who get paid the really big bucks have no trouble affording a tax pro to do all that. But the ones that are making a lot less, like say a guy on a minor league ball club, find it more challenging.

Our firm had two basketball pros (minor players) who usually had 15-20 different state returns that had to be done. I generally had to do the state returns because I had the most experience with out of state returns. It was very time consuming because we didn't have enough of some of the states to actually remember details from year to year. Therefore we had to research at least half of the states, if not 2/3rds.

 

[davew9128]

I have a former NFL player who wasn't even aware he had "lost" a $40k refund check from a state until third parties started sending him mail that particular state's unclaimed property division had that amount held in his name.