Tax Talk Thursdays: 2025 Tax Considerations for Remote Workers (with 2026 Insight from the Big Beautiful Bill)

As remote work matures from a pandemic adaptation to a long-term employment structure, tax rules have struggled to keep pace. Remote employees and their employers must now navigate a patchwork of federal, state, and local rules that affect everything from income allocation to employer withholding. With the Big Beautiful Bill Act passed in 2025, certain 2026 rules are now locked in, including the permanent elimination of some deductions that many remote workers were hoping would return.

Here’s a breakdown of the major considerations remote workers and their employers need to keep in mind in 2025—and how things will shift in 2026 under the new law.

1. No Home Office Deduction for W-2 Employees—Now or in 2026

Under the Tax Cuts and Jobs Act (TCJA), miscellaneous itemized deductions—including unreimbursed employee expenses like the home office deduction—were suspended for tax years 2018–2025. Many assumed this deduction might return in 2026.

However, the Big Beautiful Bill (BBB), signed into law in 2025, permanently eliminated miscellaneous itemized deductions, including the home office deduction for W-2 employees.

• Only self-employed individuals (Schedule C filers) are eligible to claim a home office deduction using actual expenses or the simplified square footage method.

• Planning Tip: If you are a remote W-2 worker, ask your employer to reimburse home office costs under an accountable plan. These reimbursements are non-taxable if properly documented.

  
  

2. State Income Tax Complexity: Convenience Rules, Reciprocity, and Nexus

State tax treatment of remote work is a patchwork—and employers must tread carefully. States like New York continue to apply the “convenience of the employer” rule, meaning that even if you're working from home in another state, your income may still be taxed by New York unless your remote work is for the employer’s necessity.

Some border states like Pennsylvania and New Jersey have reciprocal agreements, but those are limited. Remote workers may need to file in two or more states, and employers may need to withhold income tax in multiple jurisdictions.

The BBB didn’t override state law on this issue, so the 2026 landscape remains just as fragmented.

• Planning Tip: Maintain detailed records of your work location, especially if your employer is located in a different state than your residence.

  
  

3. Employer Nexus: Remote Employees Can Trigger State Filing Obligations

A single remote employee can create nexus for an employer in the state where the employee works, triggering:

• Employer withholding requirements

• State unemployment insurance registration

• Business income tax exposure

  
  

Employers must evaluate whether they’ve triggered economic nexus or payroll-based nexus thresholds, especially in states like California, New York, and Massachusetts.

• Planning Tip: Employers should map where their remote employees reside and consult with a SALT (state and local tax) specialist to ensure proper registration.

  
  

4. International Remote Workers: U.S. and Foreign Tax Issues

U.S. citizens working abroad remain subject to worldwide taxation, but may qualify for:

• The Foreign Earned Income Exclusion (FEIE) ($126,500 for 2024, adjusted for inflation in 2025)

• Foreign Tax Credit (FTC) if foreign income tax is paid

Employers with international remote workers face potential permanent establishment (PE) risk in the host country, which could expose them to corporate income tax obligations abroad.

The BBB did not change FEIE or FTC rules, but tax treaties and local laws must still be evaluated carefully.

• Planning Tip: Track time abroad carefully to qualify for FEIE using either the bona fide residence or physical presence test under IRC §911.

  
  

5. Taxation of Remote Work Reimbursements and Stipends

As remote work persists, some employers provide:

• Internet and utility reimbursements

• Home office stipends

• Equipment allowances

  
  

These are only non-taxable to employees if provided under a reimbursable accountable plan (IRC §62(c)). Flat stipends without substantiation are taxable income and reported on the employee’s W-2.

The BBB expands adjustments to income for some wage-based items like overtime and tips, but home office costs were not included in those adjustments.

• Planning Tip: Ask your employer to provide home office reimbursements through an accountable plan to avoid W-2 income inclusion.

  
  

6. City and Local Taxes Still Apply in Many Jurisdictions

Some cities apply wage taxes or local income taxes based on:

• Your employer’s location

• Your actual work location

• Where services are rendered

For example:

• Philadelphia imposes a wage tax even on non-residents working remotely for Philly employers.

• San Francisco imposes a gross receipts tax if there’s nexus due to remote work.

• New York City does not tax non-resident individuals, but employers may owe business taxes.

None of these rules were preempted by the BBB, so local compliance remains a separate burden.

7. What Changes in 2026 Under the Big Beautiful Bill

The BBB permanently extended and restructured several provisions, including:

• Permanent disallowance of miscellaneous itemized deductions like unreimbursed employee expenses (including home office, travel, education)

• Extended child tax credits and expanded refundable benefits

• Adjustments to income for qualified overtime and tips — but not remote-related expenses

  
  

For remote workers, this means that 2026 will not see the return of employee home office deductions and compliance with multistate tax rules remains essential.