What do we mean by “remote worker”?

Remote work terminology can get confusing fast. Here’s a breakdown:

• Remote worker: Anyone who works from a location outside of a corporate office. This could be an employee or a contractor. It’s the company’s responsibility to classify them correctly to avoid legal risk.

• Remote employee: Someone whose work is controlled by the company (schedule, tasks, benefits, etc.) but doesn’t work onsite.

• Remote contractor: Independent workers typically hired on a project basis. They typically aren’t entitled to benefits (though laws vary by country) and have more control over how the work gets done.

• Teleworker: Someone who works at an approved alternative site some of the time, but may still be required to show up in person occasionally.

• Telecommuter: Someone who works entirely from home and performs their job through digital communication.

• Digital nomad: Remote workers who frequently move between locations (or countries), often working from new destinations every few weeks or months.

Note: These definitions are U.S.-specific. Other countries use different rules to determine employment classification.

Remote work taxes for American workers

This section outlines key tax issues that apply to U.S.-based remote employees or contractors working across state lines.

Remote work taxes in the United States

U.S. tax law is a mix of federal and state rules, and remote work often triggers new filing requirements for both.

Duration: permanent vs. temporary

Whether your employee’s remote stint lasts a few weeks or becomes permanent can determine which states require you — and your employee — to file and withhold income tax.

Did you hire them to be office-based and now they’re working from home? Are they in-state or out-of-state? Are they moving permanently or just temporarily?

Where your remote worker is based can affect tax liability. For example, 43 states require tax filings if work is performed within their borders for a specific duration. If your employee lives in Alaska but spends a day working in New York, they may still need to file a New York tax return.

Location: residence and domicile

States apply different tests to determine whether a worker is a resident. These tests often factor in how much time they spend in the state and where their domicile (permanent home) is.

Someone might live temporarily in one state but still be domiciled in another. These differences matter for determining where taxes are owed. Learn more via Investopedia’s Tax Residency Rules by State.

Remote work and the evolving nexus standard

Hiring remotely across state lines may create nexus — a connection between your business and a state that triggers income, sales, or franchise tax obligations.

Originally, nexus was based on physical presence. Now, many states apply an economic nexus standard, where factors like paying employees or earning revenue in a state are enough to require registration or taxes.

Even businesses protected by Public Law 86-272 (which shields them from income tax liability) may lose that protection if they trigger nexus through remote work.

Tip: Working with a platform like Plane can help streamline compliance and automate state registrations when hiring across state boarders in the U.S.

Reason: necessity vs. convenience

Some states can tax workers based on why they’re working remotely, not just where they are.

Right now, only eight states apply the convenience of the employer rule:

• Alabama

• Connecticut

• Delaware

• Nebraska

• New Jersey

• New York

• Oregon

• Pennsylvania

This rule allows them to tax a remote worker even if they’re based out of state, if the remote work is deemed to be for the worker’s convenience.

(Arkansas and Massachusetts had similar rules during the pandemic, but those have since expired.)

State tax agreements and exceptions

Many neighboring states have reciprocity agreements—about 30 total across 16 states and Washington, D.C.—that prevent workers from being taxed twice on the same income.

For example, Illinois has agreements with Iowa, Kentucky, Michigan, and Wisconsin. These states won’t tax Illinois residents working remotely for Illinois-based employers.

During the pandemic, several states (e.g., Georgia, Indiana, Minnesota) also declared that remote workers temporarily living in their borders wouldn’t owe income tax.

Withholding individual income taxes

Employers must stay on top of changes in tax policy. Whether and where to withhold income tax depends on factors like duration, location, and the convenience rule.

Remote work taxes outside the United States

International remote work tax rules are even more complex, with every country having its own systems, treaties, and exceptions.

In general, remote workers owe taxes in their country of tax residence (where they spend most of the year). In some cases — like for U.S. citizens — they may owe taxes to their home country as well.

For example, a U.S. citizen working from Portugal may owe taxes to both countries unless a tax treaty or exemption applies. Countries like Portugal offer programs (like NHR status) that reduce or eliminate these obligations.

Companies hiring remote workers internationally should also comply with local labor and tax laws to avoid fines or legal issues. Platforms like Plane help ensure global compliance.

Comply with tax laws worldwide — partner with Plane

U.S. and international tax compliance is complicated. Working with a global HR and payroll platform like Plane helps you:

• Pay contractors and employees anywhere

• Handle payroll and benefits

• Stay compliant with local tax laws

Want to learn more?

• Book a demo

• Or watch our 7-minute walkthrough video

Remote work taxes FAQ

Where do I pay state income tax if I live in one state and work remotely for an employer in another?

It depends. If both states tax income, you may have to file a non-resident return in your employer’s state and a resident return in your home state. Some states have reciprocal agreements that let you skip the non-resident return.

Check with your employer or a tax professional, and always notify your company if you plan to change locations.

Can remote workers and digital nomads be taxed twice?

Yes, but it’s uncommon. Most countries and states offer tax credits or treaties to prevent double taxation. It typically occurs only when:

• A worker’s country of residence and citizenship differ

• The country lacks a tax treaty

• Worker classification or residency status is unclear

For example, U.S. citizens must file with the IRS regardless of where they live.

Can a remote worker be taxed by two U.S. states at once?

Yes, in these scenarios:

• You live in one state and your employer is based in another

• You temporarily work in another state and exceed the filing threshold

• Your employer is in a “convenience of the employer” state (e.g., NY)

• You move mid-year and both states consider you a part-year resident

You may be eligible to claim tax credits to avoid double taxation.

What is the “convenience of the employer” rule?

This rule allows certain states to tax employees even if they don’t physically work there, as long as the remote work is for the employee’s convenience. States that apply it:

• Alabama

• Connecticut

• Delaware

• Nebraska

• New Jersey

• New York

• Oregon

• Pennsylvania

Employees in these states may owe tax even while working elsewhere.

What happens if remote workers or digital nomads skip their taxes?

They may face:

• International double taxation

• Fines or late fees

• Jail time or a criminal record

• Denied visas or deportation

• Passport revocation

• Business shutdown (for employers)

Legal Disclaimer:

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.