Remote workers who left the state face tax challenges


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LOS ANGELES – For the past three years, Rainier Nanquil has worked remotely in various locations in Asia and Latin America.

As a commercial real estate broker for an Orange County-based company and private equity investor, Nanquil, a self-proclaimed digital nomad, just needed a reliable phone, computer and internet access to perform his work.


What would you like to know

  • Workers who left the state or arrived to take advantage of remote workers may face tax problems
  • The coronavirus pandemic last year has sped up work from home and work from anywhere
  • As the pandemic continues, up to 23 million workers recently surveyed said they plan to work remotely
  • Remote work can present pitfalls and tax advantages

Although he worked in different places, he kept it simple when it came to filing taxes.

“Since I am still a resident of California and a US citizen, the filing process has been the same as in previous years,” Nanquil said. “My home port is still in California, where I make constant round trips throughout the year.”

Rather than dealing with the complexity of changing residence – and possibly reaping certain tax benefits, Nanquil continues to reside in California for tax purposes.

But for workers who had the capacity and took the opportunity during the coronavirus pandemic and left the state to work remotely or came here to work, they may be wondering how to handle their new tax situation at home. The May 17 deadline is approaching for filing income tax returns. .

“It can get a little tricky,” said Grace Taylor, owner of Gracefully Expat, a specialist tax consultancy that focuses on US expats and tax advice for remote work. “From a national perspective, we have to look at it from many different angles. [worker’s] relationship with the State of origin? Are they domiciled in this state? What is the worker’s employment status? Every state is different. We have to look at the whole situation of that person and his connection to his country of origin and his employer. “

Grace Taylor, digital nomad and tax consultant. (Courtesy of Grace Taylor)

The coronavirus pandemic that surfaced last year has changed the landscape of work. In California, subsequent stop orders to prevent the spread of COVID-19 have forced employers to have their employees work remotely and accelerated a growing work from home and digital nomadic movement.

The days of driving in an office and working the 9 a.m. to 5 p.m. schedule may be coming to an end. Depending on the type of work, an employee’s home is no longer necessarily that of the company where he works.

Advances in technology have allowed more people to have the flexibility to move to one state while working for an employer in a different state. This is a trend that should accelerate.

About nine million people were relocated during the pandemic last year, the National Association of Real Estate Agents reported. The report found that one in three adults worked remotely, up from one in 20 before the pandemic.

According to a recent survey on 20,000 workers nationwide by Upwork, 14 to 23 million Americans plan to relocate because of remote work.

“Combined with those who move independently from remote work, short-term migration rates can be three to four times what they normally are,” the Upwork study says.

Some of the main reasons people move are looking for cheaper housing, buying bigger homes, a better climate, and lower tax rates.

With remote working perhaps the new normal and people living in different states while working in another, there are tax implications.

There are pitfalls and tax benefits for working remotely, said Christopher Manes, tax attorney at Palm Springs-based Manes Law, who specializes exclusively in California residency tax planning.

“The pandemic may have burst the dam and it has become apparent that people don’t need to be in an office,” Manes said.

For some remote workers, it makes sense to leave California. California has one of the highest income tax rates in the country. Depending on the employee’s tax bracket, it could reach 13.3%.

Manes said during the pandemic some of his clients moved to tax-friendly states such as Washington, Wyoming, Nevada, Texas, Florida and Tennessee. These states have no income tax.

“If it’s no use being here (California) and your job is very mobile, you can travel anywhere,” Manes said. “Every state has a lower tax rate than California, at least in the upper brackets. If you’ve moved to a zero income tax state or a state that has a lower tax rate and you changed your residence, you don’t owe tax in California just because you work for a California company. “

The downside, however, is that some employers might reduce an employee’s pay if that person moves to a different, cheaper state of life.

“A lot of remote workers didn’t realize when they moved from San Francisco to Wyoming or wherever, a lot of companies said, ‘Well that’s great. But we’re going to have to cut your pay because we’ve based our pay on the cost of living in that area, and it doesn’t cost much to live in Wyoming. “”

Manes added that workers who moved to another state but claimed to live in California for the highest wages were at risk of being audited by the Franchise Tax Board, the state’s tax enforcement agency.

Manes said that for California residents who worked remotely and mostly stayed in the state, nothing had changed.

“The work done in California is California source income,” Manes said. “All of their income is California income, so many W-2 employees will still be paying tax on that.”

Additionally, those who have moved to California from another state to work remotely may be considered a resident and must file and pay California taxes. If you are in California for vacation or for temporary reasons, you might be obliged to pay the state income taxes.

“You will have to file multi-state income tax returns,” Manes said.

Remote workers have to fill out the correct tax forms otherwise they may face some penalties.

“The main risk would be that someone would fail to file a state return in a state in which they have worked long enough to trigger a filing requirement,” Taylor said. “Then there would be penalties and late deposit interest on any outstanding balance.”

Taylor and Manes said remote workers should let their employers know they plan to work in a different state than where they are based. This company may be required to withhold income taxes from the state of residence of the remote employee.

Rainier Nanquil, a commercial real estate broker. (Courtesy of Rainier Nanquil)

For Nanquil, the digital nomad, he took advantage of the luxury of remote work.

Working remotely allowed him to travel to different places and immerse himself in other cultures.

“I traveled a lot growing up,” said Nanquil, 29. “My inspiration was to eventually be able to support my family financially as I got older while still having the ability to continue to explore the world as I did when I grew up. I have always been fascinated by the people and the different cultures that I have learned throughout my life. trips. “

Nanquil’s main tip for anyone wishing to work remotely – whether national or international – is to know the local rules and laws of the destinations.

Additionally, he said remote workers should work hard, prove to their employer that they can be productive working outside of a traditional office, and have fun.

Immerse yourself in the local culture, he said.

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