By Jeremy
When the office and the home are in different states, multiple states can claim the same wages. Residency, income sourcing, and the "convenience of the employer" rule each shift the outcome.
Remote and hybrid work have made individual state income taxation more complex. States generally tax individuals based on where they live and where they work, which creates issues when those locations differ. As noted by RSM, an employee's tax obligations are typically tied to their state of residence or employment, but remote work has increased the number of situations where multiple states have a claim to the same income.
A significant number of employees now work outside of their employer's state, increasing the likelihood that more than one state will attempt to tax the same wages. In most cases, the employee's state of residence taxes all income, while another state may also tax the portion of income connected to that state. When this occurs, employees may need to file in multiple states and rely on a credit for taxes paid to another state to reduce double taxation — although this credit does not always fully eliminate the additional tax (Wilford).
Some states apply the "convenience of the employer" rule, which can increase the tax burden for remote employees. Under this rule, if an employee works remotely for their own convenience — rather than out of necessity — their income may still be treated as earned in the employer's state. As a result, a nonresident employee may be taxed on 100% of their wages by the employer's state, even if they are physically working elsewhere (RSM). This rule contributes to significant differences in how states tax remote workers.
For hybrid employees, some states use a pro rata approach to allocate income based on the number of days worked in each state. This method follows where the work is performed but requires employees to track their work location carefully, and it is not applied consistently across all states (RSM).
Overall, remote work has increased the complexity of individual taxation. Employees must now consider residency, income sourcing, reciprocity, and state-specific rules — and in many cases, will face multistate filing requirements as a result. Because reciprocity applies to only certain state pairs, many remote employees are still required to file in more than one state (Walczak).