State Income tax and remote working

[ajklenne]

I am looking at job located in nebraska but would be a remote employee working out of South Dakota.  Would I pay nebraska state income tax on my earnings?

[DoninGA]

If you never actually work or live in Nebraska then you should only have your wages taxed by South Dakota.

[ajklenne]

The company is located in Nebraska and I'd have to visit there occasionally.

[DoninGA]

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@ajklenne wrote:

The company is located in Nebraska and I'd have to visit there occasionally.

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Only the days you actually worked in Nebraska would be subject to Nebraska state income tax withholding your wages.

If that is the case and you are taxed by Nebraska you would file a Nebraska non-resident tax return for the income received while working in Nebraska.  Any NB taxes would be credited on your South Dakota resident tax return.

[ajklenne]

South Dakota does not have income tax filing so how would a person receive a credit?

[DoninGA]

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@ajklenne wrote:

South Dakota does not have income tax filing so how would a person receive a credit?

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Right...South Dakota does not have a personal income tax.  So if your employer has Nebraska withholding from your wages you only file a non-resident Nebraska state tax return.

[TomD8]

@ajklenne --

Nebraska is one of a handful of states that tax non-resident telecommuters according to the "convenience of the employer" doctrine.  That rule states that if a non-resident is telecommuting from a location outside Nebraska for their own convenience, rather than for the convenience of the employer, their income is considered "Nebraska-source" income, and is taxable by Nebraska.

See Section 003.01C "Compensation for Services" in this reference:

https://revenue.nebraska.gov/about/legal-information/regulations/chapter-22-individual-income-tax

So if you're working remotely from SD for your own convenience, your income is taxable by Nebraska.

[ashleyswing]

@DoninGA @TomD8  Can I ask the same question but living in North Carolina and working in Maryland? I work 100% in NC but they took out MD state taxes and Baltimore city taxes from my first paycheck. Thanks! 

[TomD8]

@ashleyswing —. If you’re a non-resident of MD who never physically works inside MD, then your income is not subject to MD taxation.  It is, of course, fully taxable by your home state of NC.

A handful of states tax non-resident remote workers; MD is not one of them.

Talk to your payroll department.  If your work is 100% performed from an NC location, they should be withholding NC taxes for you, not MD taxes.

If your employer cannot or will not withhold NC taxes for you, you should begin making quarterly estimated tax payments to NC.  See this web reference for details on that:

https://www.ncdor.gov/taxes-forms/individual-income-tax/estimated-income-tax

[ashleyswing]

@TomD8  Thank you so much! I contacted payroll and they will adjust to withhold NC taxes only starting next paycheck. They said they won't go back and fix the first one so my W2 will show MD, Baltimore, and NC taxes, I think (?). Any clue how that will effect me tax time? 

[TomD8]

@ashleyswing --

Your year-end W-2 will (presumably) shown the mistakenly withheld MD city and state income taxes.  If you want to get a refund of those taxes, you'll have to submit a non-resident MD tax return, on which you allocate zero income to MD. 

Your withheld NC taxes will be a bit less than they should otherwise have been, which will of course affect your net taxes owed to NC.  

Remember that your income is not subject to MD income tax only to the extent that it is carried on from an NC location.  Income from work actually (physically) performed from an MD location is taxable by MD.

[ajklenne]

If I were a resident of Iowa and working in Nebraska would I need to pay income tax in Iowa and Nebraska?

[TomD8]

@ajklenne :

Yes.

ALL your income is taxable by your home state of Iowa, regardless of where you earn it.

In addition, Nebraska can tax you as a non-resident on income you earn from work you actually (physically) perform in Nebraska.

Therefore you must file two state tax returns: a non-resident NE tax return, AND a resident IA tax return.

You'll be able to claim a credit on your IA return for the taxes you pay to NE, so you won't be double-taxed.  But you must file in both states.

If you do your returns in TurboTax, be sure to complete the non-resident state return first, before the home state return, so that the program can correctly calculate and apply the credit.