Remote working offers incredible flexibility and autonomy in managing your own hours and schedule. That freedom, though, is subject to a great responsibility, especially when it comes to taxes for remote workers.

People who work from home also need to stay on top of their tax obligations, but navigating these waters can get somewhat complicated.

This is where professional guidance can make a world of difference, so let’s see how:

Tax Rules for Remote Workers

Understanding how taxes work is a fundamental part of working remotely. When you stay compliant and follow the rules, you ensure a smoother experience and are legally protected.

Meeting your tax obligations is essential since it is legally required, regardless of where you are working from.

The general rule is, income taxes for remote workers need to be paid in the country of residence, be it working in an office or from home. Even if you work from home for a foreign company, you are responsible to pay taxes within the country you call home.

Moreover, if you work from home while in another country, you may need to acquire a visa. For example, Portugal offers remote workers visas that include a work permit and residence, valid for up to a year.

Taxes for Remote Workers in the United States

Managing an employee’s taxes is simple when they live and work in the same state as the company. The company withholds state and federal income taxes and fulfills every other applicable obligation, like the Federal Unemployment Tax (FUTA).

This process remains the same for all remote workers who operate within the same state. However, when an employee works and lives in a different state than the company, then the tax responsibilities become a bit more complex.

Generally, the state where employees reside have the authority to tax their income. This means that companies need to comply with the laws of each state where a remote worker is based.

Regarding state taxes for remote workers, it is imperative to consult with unemployment agencies within each of those states to ensure complete compliance.

a) Commuting Across State Lines

Companies that are located near state borders often hire workers who reside in the neighboring states and have to commute to work.

This is a setup that comes with unique tax obligations and both the employee and the company may face tax obligations in two states.

However, some states have agreements to prevent double taxation, thus allowing employees to just pay income tax in their home state.

b) Living Out of State & Working From Home

Taxes for remote workers must be withheld if the employee lives and works in a different state than the company’s address. Unemployment taxes and wages also need to be reported in the employee’s state, although some states have an “employer convenience” rule that requires taxes to be paid in the company’s state instead.

However, in these cases there is a high risk of double taxation, so it is best to take the necessary steps before starting to live and work in a different state than the company’s.

c) Independent Contractors

Independent contractors are also referred to as 1099 workers within the US and they are not considered employees.

This means that all tax related obligations are their responsibility. Remote workers must pay both federal and state taxes, since they are self-employed individuals, in the state of residence.

Moreover, tax write offs for remote workers become difficult to manage in these conditions as they have to file and pay the estimated taxes.

Note: Companies need to properly identify workers to avoid penalties and issue Form 1099-NEC for those contractors who are getting paid $600 or more in a calendar year.

Taxes for Remote Workers in Europe

The same principles and procedures apply if you work remotely within the European Union. In Europe, it is imperative to adhere to local regulations within the country you live and work in.

Tax rates and processes are different for each country, so it is important to first research their policies as it will help you to avoid any potential consequences that may arise.

Countries with Biggest Tax Refunds

Tax benefits for remote workers vary significantly by country, with some offering quite good perks and conditions, while others are quite strict about their guidelines.

We have analyzed the tax policies for the following countries:

• Netherlands
• Belgium
• France
• Germany
• Austria
• Poland
• Italy
• Ireland
• Portugal
• Spain
• Greece

The country with the biggest tax deductions for remote workers is none other than Belgium. So, if you’re looking to move abroad and work in a different country in Europe, Belgium is your safest bet regarding payroll administration and paying taxes from the income you generate.

Countries with NO Tax Refunds

On the other end of the spectrum, we have countries that offer absolutely no tax refunds, non-existent lump-sum negotiations, or no options to negotiate with employers.

The four countries with little to no tax breaks for remote workers are the following countries:

1. Spain

There are no specific tax refund regulations in Spain, meaning high taxes, and employers are obligated to provide cover for all tools and equipment for remote workers.

2. Italy

Employers may voluntarily support remote workers via purchasing necessary equipment, contributing to home office expenses, or work related travel reimbursements.

3. Portugal

There are no binding regulations so far when paying taxes for remote workers, so all compensation is based on an agreement between employees and employers

4. Poland

Poland is still in the process of working on new tax laws, but currently, employers can reimburse for home office expenses, although it is not mandatory.

Note: in any case, it is advisable for both parties to document and sign all agreements in writing in order to avoid any misunderstanding and potential lawsuits.

Best Countries with Tax Refunds

There are also tax-free countries for remote workers, like the Kingdom of Monaco, although most others offer slight advantages and deductions.

For example, France provides up to €580 per year, while Austria provides up to €300 per year with a maximum of 100 days, depending on days worked from home.

Here’s a breakdown of the analyzed countries and their tax deductions per day and year:

Country	€ per diem (max.)	€ per year (max.)
Belgium	7.46	1715.40
Ireland	3.20	736
Germany	5	600
France	2.52	580
Netherlands	2	460
Greece	1.46	336
Austria	3	300
Spain	N/A	N/A
Italy	N/A	N/A
Portugal	N/A	N/A
Poland	N/A	N/A

Negative Tax Implications for Remote Workers

Failure to follow and comply with tax regulations can have serious consequences on all workers, with remote workers being no exception to this rule.

To avoid any negative implications with taxes for remote workers, please take a look at the following:

• Fines & Late Fees – not paying taxes can lead to high penalty charges or late fees
• Criminal Record – in some countries and states, a failure to comply may lead to serious criminal charges being brought upon the worker and even jail time
• Permanent Ban – tax evasion is a serious offence and it could result in the worker being banned from a country until all payments are settled
• Double Taxation – remote workers who fail to clarify the tax residency status may end paying double in taxes, both in the residing and their home country

Frequently Asked Questions (FAQ)

How do taxes work when you work remotely?

Taxes for remote workers work similar to traditional employees – remote working people need to pay taxes depending on the local, state, and federal laws within the state or country they live and work in.

Which state do you pay taxes in if you work remotely?

Basically, a remote worker needs to pay taxes in the state they work in, keeping in mind that state’s tax laws and regulations. When calculating state taxes for remote workers, the employer needs to take into account the state laws where the worker resides and accommodate the tax payroll withholdings accordingly.

Are there any tax deductions for remote workers?

There are some basic deductions for remote workers to use, such as the internet bill that will be written off. However, you’ll need to be an independent contractor or a self-employed small business owner to be eligible for this type of tax deduction.

What are the taxes for consulting contracts?

Taxes for consulting contracts work the same way as with a regular employee. The only difference is that you will have to pay the taxes yourself as opposed to an employer doing it for you.

Do remote workers get taxed twice?

In essence, yes, it is possible for a remote worker to get taxed twice. Although this usually never happens, and it happens only when remote workers fail to clarify the tax residency. This means that two states or countries may require the remote worker to pay taxes according to their laws.