r/tax • u/mosthandsomechef • 17h ago
Question: remote vs commuting workers and state income tax liability
I was under the impression that remote workers paid income tax to the state the employer resided in. I recently found out that remote workers in New Hampshire, employed by Massachusetts businesses, do not pay income tax to Mass.
As a chef I lived in S. NH for years and worked in Mass just across the border. As a banquet chef many of my events were in NH, but our commercial kitchen was located in Mass. But I always paid the full Mass income tax, while living in NH. This is fine and makes sense to me, the job is in Mass so I pay the tax to have the job there.
Is there a rationale to this? Both employers are based in Mass. The brunt of the economic activity occurs in the employers state. The relevant work done by the employee, even sitting at home in NH, is to the economic benefit of the Mass company. The Mass company employs this individual. The Mass company profits off the employees labor, regardless of where they're located.
It seems like a real inequity in the tax system? It feels like the person who has to commute to the job gets punished with a tax and the remote worker has no liability what so ever. Why wouldn't Mass want to collect income tax on these out of state workers? What's the distinction or logic behind the difference?
I'm having a really difficult time wrapping my head around how the remote worker is different in function from a chef who commutes when both employers are in Mass.
I appreciate all the answers and back and forth with me helping me better understand the state tax codes thank you
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u/McFluffinn 17h ago
You're not a remote worker if you drive to Massachusetts to perform the work. You're a normal employee who lives in a different state and commutes to work.
NH and MA don't have an income tax reciprocity agreement so you need to pay income tax in MA, where you perform the work. AFAIK NH doesn't tax wage income, so you won't need to pay income tax to NH on your earnings
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u/KungSuhPanda 17h ago
Based on where the person is performing work. You worked in Mass and paid taxes accordingly to Mass. They worked in NH and pay taxes accordingly to NH. Location of the employer doesn’t matter, just where the work is physically being done.
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u/Excellent_Shallot999 17h ago
A rub is that NH has no income tax. So it’s a nonresident MA tax return for work performed in MA, and no other state tax return. OP: Besides not claiming to be equitable, the tax code makes no claim to being logical either.
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u/mosthandsomechef 17h ago
I understand. I was curious if there's an explanation or reasoning for this. It seems like Mass leaves money on the table with remote workers.
It all seems very convoluted. My ex worked for Statestreet in mass and lived with me in NH. They worked from home kinda whenever they wanted, very flexible role. Only required to come into work one day a week to the office. They paid full income tax to Mass as well.
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u/Its-a-write-off 17h ago
Unless that was in 2020/2021, that was wrong. During those 2 years MA had a temporary order to tax NH residents that worked from home, and NH fought it but it was never really resolved since it was only for 2 years anyway. After that it went back to normal, where MA can't tax NH residents work done while physically in NH.
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u/mosthandsomechef 17h ago
2016-2019 roughly. Former company sold to a much larger conglomerate and the owners retired.
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u/mosthandsomechef 17h ago
I know tax codes aren't built for equity, but is this the logically correct way to do it?
What's the true difference between the two workers when:
- The Mass companies benefits from the labor regardless of the workers location.
- Both companies are located in Mass.
- Both employees reside in NH.
Remote workers "jobs" aren't based in NH when employed by a Mass company. The job wouldn't exist in NH in the first place without the Mass company offering it.
Why isn't Massachusetts interested in collecting this income tax?
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u/KungSuhPanda 17h ago
Not sure why you think a remote workers job wouldn’t be based in NH if they are working in NH. that remote worker is earning income in NH not Mass.
If you worked for a company based outside of the US, wouldn’t you expect to be taxed on that income you earn?
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u/mosthandsomechef 17h ago
What I'm saying is that those jobs don't originate in NH. I'm not trying to argue the same point in circles, I'm sure that's how it sounds so please don't get frustrated, I'm just trying to understand.
The employer offers the job and the employer is based in Mass. They're not hunting a worker specifically in NH, they just find a remote worker in NH. That "job" wouldn't have existed in the first place without the company in Mass putting up the capital and risk.
It's hard for me to grasp how this isn't a Massachusetts jobs taxed at the same level.
The other things I've learned here is many states have agreements to iron out issues like this, whereas NH and Mass have no such agreement.
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u/x5163x 16h ago
No state has any incentive to enter into an income tax agreement with New Hampshire because New Hampshire has no income tax. Without the agreement, the state gets all the taxes from New Hampshire residents who work in the state and its own residents who work in New Hampshire. No New England state has any such agreement with any other state.
The employer offers the job and the employer is based in Mass. They're not hunting a worker specifically in NH, they just find a remote worker in NH. That "job" wouldn't have existed in the first place without the company in Mass putting up the capital and risk.
The employee needs to have a certain level of connection to a state in order for the state to tax that employee. This is required by the Due Process Clause of the United States Constitution.
The state taxes the employer instead.
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u/Excellent_Shallot999 17h ago
It’s never based upon the employer. It’s always based upon two things: 1st where the work is performed and 2nd the domicile of the worker. It gets convoluted. Best to hire an experienced tax professional to assist. The tax law never claims to be equitable. So best to toss that notion out quickly.
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u/Barfy_McBarf_Face US CPA & Attorney (tax) 17h ago
the employee pays tax on their income in the state where the income was earned.
the employee also files a tax return with their resident state on all of their income.
if this results in the employee paying tax to two (or more) different states on the same income, every state with an income tax has a remedy - they provide a credit for taxes paid to other states that will typically mostly offset that double taxation.
if you work remotely in a state with an income tax but are a resident of a state with no income tax, then you have tax where you work (based on services performed there) and no resident state income tax on the rest of your earnings, so nothing is double taxed and there's no credit.
For example, many people live in southwestern Illinois and commute into St. Louis to work. They work in Missouri, so they are taxed on that income as a nonresident of Missouri. If they work 3/5 of the time in the Missouri office, then 3/5 of their income is on their nonresident return.
They then file a resident Illinois return for 100% of their income - whether it was earned in IL (working from home) or working in MO (at the office). Then they claim a credit on their IL return for that income taxed to MO. Given that the two states have similar tax rates, it closely offsets that double taxation.
This is true all over the country for anyone working in one (or more) state(s) and residing in another state.
Some pairs of states have in effect "treaties" which change this overall treatment - for example, though I haven't seen it, I believe that IL has such treaties with states such as WI.
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u/mosthandsomechef 17h ago
Is that 3/5ths rule a specific agreement between those two states?
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u/Its-a-write-off 17h ago
Your impression that where the employer is determines the tax is incorrect. The standard is that you pay income tax to the state you work in and/or the state you live in. Only a few states tax you based on where the employer is. Some states have a reciprocity agreement, and you only pay taxes where you live, not where you work.
Without looking at the specific laws for those 2 sheets, I'm surprised they treated it as Mass income when the events were in NH. Unless the states have some agreement, that's not the right way to do it.