Tax Talk Thursday: Tax Considerations for Remote Workers in 2025-2026

The rise of remote work has transformed the tax landscape, and 2025-2026 is a pivotal year as remote employees and self-employed individuals navigate increasingly complex state, federal, and international rules. Remote work provides flexibility, but it also carries tax risks that can result in double taxation if not planned for properly.

If you live in one state but work remotely for a company in another, your wages may be subject to taxation in both states. Certain states, such as New York, Pennsylvania, Delaware, Nebraska, and Arkansas, apply “convenience of the employer” rules. This means your income is sourced to the employer’s location unless the work outside the state is performed for the employer’s necessity rather than your personal choice. A California resident working remotely for a New York employer may still owe New York income tax. To avoid double taxation, review reciprocal agreements and file for credits for taxes paid to other states, typically using California Schedule S (Other State Tax Credit).

Self-employed individuals can claim the home office deduction using Form 8829 or the simplified method ($5 per square foot, max 300 sq. ft.). W‑2 employees cannot deduct unreimbursed employee expenses in 2025-2026 because the deduction remains suspended. Instead, employees should request reimbursement under an accountable plan, which allows legitimate business expenses to be excluded from taxable income. Flat stipends without receipts remain taxable wages.

Employers with remote workers should consider nexus and withholding issues. Having an employee in a new state can create income tax nexus or even sales tax obligations for the employer. Employees may face multi-state withholding, leading to potential overpayments or refund delays if payroll isn’t updated correctly. Proper documentation is essential for claiming credits and avoiding double taxation.

For taxpayers working outside the United States, there are two layers of taxation to consider. First, the United States taxes worldwide income, so you may need to rely on the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) to avoid double taxation. Second, many foreign countries tax income earned for work performed within their borders, even if your employer is U.S.-based. Some countries treat you as self-employed if your U.S. employer has no local presence, triggering local income taxes, social security contributions, or business registration requirements.

Spending significant time in another country can also make you a tax resident, often after 183 days, subjecting you to local income tax. Working on a tourist visa may be illegal in some countries, and your presence abroad can create permanent establishment risk for your U.S. employer. Remote workers abroad should check local contractor and tax rules, maintain travel logs, and understand applicable treaties or totalization agreements to reduce risk.

Remote work offers flexibility but creates complex state, federal, and international tax obligations that require proactive planning. Tracking your work locations, leveraging accountable plan reimbursements, and understanding local rules abroad are essential steps to avoiding costly surprises. If you have any questions, feel free to reach out to may.sung@mkhtaxgroup.com.