From taxes to status to pay, here’s what to consider
Digital nomads are used to it, as are freelancers, and people in border areas. But the ranks of people who live in one place and work in another have swelled over the last two years. Able to work remotely for the long haul, millions have moved to places with a lower cost of living or to be closer to family, far from the cities where their companies are based. There are plenty of benefits to this arrangement, of course, but not every aspect is a convenience. Come tax time especially, things can get pretty complicated. But there are little things to keep in mind throughout the year.
Generally speaking, the state where you physically spend most of your time is where you pay income tax. So, you pay taxes where you live, even if your employer is based in another state. Seven states — Arkansas, Connecticut, Delaware, Nebraska, New York, Pennsylvania and, Massachusetts — have a “convenience rule,” with the convenience in question being the employers’. Those states tax employees of businesses located within their borders whether the employees are there or not. Most other states offer such employees a tax credit so they’re not double-taxed. Several states with large metropolitan areas near state borders — e.g., the Tri-State Area around New York City — have reciprocity agreements with their neighbors to avoid this sort of problem. But that is not the case everywhere, so if you work for a company in a convenience rule state, consult with HR to make sure you’re withholding the right amount.
If you have health coverage through your employer, take a look at your insurance card. Your insurance might be through a provider’s state-specific entity, or through a provider that operates in certain states only. You don’t want to try to make a doctor’s appointment where you live only to find everyone is out of network and you have a huge bill on your hands. Discuss with HR before you relocate to make sure you get coverage that works where you live. While birth rates have been down during the pandemic, people with stable white-collar jobs they can work remotely tend to also be in the demographic of people who are having children now. If that applies to you, check with HR about which state’s family leave benefits you are eligible for. There can be a stark difference, with many states offering nothing in the way of paid leave and a select few offering up to 12 weeks.
Employee vs. Independent Contractor
You, your employer, or both might decide the headaches permanent remote work brings aren’t worth the trouble and that the best arrangement going forward is to make you an independent contractor rather than an employee. No matter what your boss might say, if you’re an IC you can legally set your own hours and work only on certain projects. That doesn’t mean you’re home-free, of course, as they’ll only pay you for work you do and can easily let you go if you’re not fitting their needs. As such, both sides need to make sure expectations are clear before entering such an arrangement. You’ll lose some employee benefits, so you might have to get health insurance on the ACA marketplace and you won’t be eligible for workers’ compensation, for instance. There are certain tax benefits for 1099 filers, such as itemized deductions for a home office and equipment.
Money, Money, Money
Whether you’re an employee or an IC, your employer might want to renegotiate your pay. Workers have been flocking to places with lower costs of living where they can get more living space for less than a crowded urban area with not enough housing. If your cost of living is less, your employer might want to pay you less. Workers might rightly argue that compensation reflects their value to the company, regardless of what the monthly rent or mortgage payment is, but if you want to keep your current job rather than find a new one, you might have to play ball. Say your employer is fine with you working remotely but wants you in the office for a few key weeks out of the year, who pays for your transportation and accommodations during that time? That’s a perk to negotiate for, especially if they want to dock your salary.
You’re sure to be handling sensitive company data still, and it’s important to take it just as seriously when you’re working from the comforts of your own home as you would at the office. The security of your internet connection is important, too, and your employer might want to work on a company-issued computer/laptop and phone. If that’s the case, make sure you’re legally protected in case of any breaches, and if your employer is requiring you to use specific equipment, they should pick up the cost.
Working remotely can have numerous benefits on lifestyle, work-life balance, the environment, and plenty of other areas. Just make sure you have your bases covered so there are no surprises. Good communication and expectation setting between employer, HR, and worker are key.