Remote work has become increasingly popular in recent years, and the COVID-19 pandemic has only accelerated this trend. As more people choose to work from home or anywhere else outside of a traditional office setting, it raises important questions about how taxation is affected. Your tax domicile is important for determining your state and federal tax liability. For example, if you are domiciled in a state with no income tax, you will not owe state income tax on your income earned in that state.
Catherine Stanton, past chair of the AICPA’s state and local tax committee, says she’s fielded an increasing number of questions about out-of-state remote situations from clients, both employees and employers. If you worked from home before the pandemic, the rules on claiming expenses were broadly the same as they are now. That is, if you were employed, you can only claim if you did not have the option of working in an office, or if your job requires you to live a long way from your place of work. People living outside the U.S. who work as independent contractors must remember to save money for their own taxes. Employers generally do not withhold any taxes from contractors or make payments to government entities on their behalf.
Foster carers and shared lives carers
Common deductible expenses for remote workers may include home office expenses (such as rent or mortgage interest), internet bills, software subscriptions, equipment purchases, and travel costs directly related to work. To stay on top of your tax obligations as a remote worker, it’s important to maintain proper organization. Keep track of all your income sources, including payments from different clients or employers. Your tax residency may depend on various factors such as the number of days spent in a particular country, your ties to that country, and whether you have established a permanent home elsewhere. It’s important to consult with a tax professional or review the specific tax laws of both your home country and the host country to determine your tax obligations.
You should also be aware that your presence and activity overseas could mean that your employer becomes liable to corporation tax (or a foreign equivalent) if it is sufficient to amount to a ‘permanent establishment’ for your employer in that country. Like income tax, the starting point is to assume that you could potentially be liable to social security in the country where you physically carry out your work. If you are liable to social security overseas, then it is likely that your employer may also be liable for employer’s social security in that country. From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits.
You may not be able to deduct home office expenses
This rule only applies if you live in a state that levies a state income tax on its residents. For instance, if you live in West Virginia, Pennsylvania, Washington DC, or Virginia https://remotemode.net/ and work in Maryland, you’ll only have to pay state taxes in your home state. You can file a nonresident state tax return to avoid being taxed on the same income twice.
For example, standard employees in the U.S. receive a W-2, indicating their tax status. The W-2 determines the state tax withholding for remote employees (and everyone else). If you are unable to get protection under a double tax agreement, you should expect to be taxable in the UK on your income for duties performed here. In this situation, you are likely to need to file a UK tax return and there may be withholding obligations for your employer. However, just as there may be a double tax agreement which protects you from exposure from income tax in that country – there may be a social security agreement which does the same for social security purposes.