There is a version of the remote work dream that looks something like this: coffee in hand, laptop open on the kitchen table, no commute, no fluorescent lighting, and a paycheck that is all yours. The letter from a state revenue authority claiming a portion of that income, even though you haven’t been there in months, is conveniently left out of that picture.
Many remote workers are currently located here. Not in some high-stakes legal battle, but in a quiet, ongoing tax predicament that most people were unaware of when they relocated to a less expensive state.
The fundamental issue is structural. The fundamental premise of the American tax system is that people typically reside in the same state as their place of employment. That presumption was nearly entirely disproved by remote work, and the tax laws haven’t kept up. What’s left is a patchwork of fifty distinct state frameworks, each with its own standards for physical presence, definitions of residency, and ideas about who is entitled to a portion of your earnings.
For good reason, New York is arguably the most talked-about example. The “convenience of the employer” rule, which is enforced by the state, basically states that if you work remotely for a New York-based company and the arrangement is for your convenience rather than a legitimate business necessity, then New York considers that income taxable. Even if a resident of Florida works for a Manhattan company from the comfort of their own home, they might still owe New York state income tax. It seems unlikely. It is genuine.
Currently, eight states—including Connecticut, Pennsylvania, Delaware, and New Jersey—enforce this rule in one form or another. Because each applies it slightly differently, the compliance burden on employers and employees is not only substantial, but also genuinely challenging to manage without expert assistance. Tax experts don’t usually sugarcoat this. “All 50 states have 50 different ideas,” is the AICPA’s rather direct stance. As of right now, there is no federal solution.
In certain situations, reciprocity agreements can lessen the impact. Approximately thirty such agreements, which permit citizens to pay income tax only in their home state, regardless of where their employer is located, are in effect in sixteen states and Washington, D.C. New Jersey and Pennsylvania both have one. Wisconsin and Michigan both have one. These agreements are really helpful, but they only cover a small portion of the nation and have additional paperwork requirements that employees frequently are unaware of until filing season.
There is insufficient focus on the business aspect of this issue. A North Carolina-based business that employs remote workers dispersed throughout several states may inadvertently create a tax “nexus” in those states, resulting in withholding requirements, unemployment insurance contributions, and income tax filing obligations in locations the business never planned to operate. This is made even more complicated by hybrid work arrangements. Tracking income allocation becomes a compliance task that some small businesses are just ill-equipped to handle when employees divide their time between two or three locations.
There is a feeling that this problem is going to become much more prominent. Historically viewed as a back-office issue, payroll tax compliance is beginning to receive the same level of scrutiny as sales tax did twenty years ago. According to Lynn A. Gandhi, a partner at Foley & Lardner, employee withholding will eventually become as controversial and significant as sales tax, and payroll taxes are the next frontier in multistate taxation.
In an effort to clarify when an employee working from a home in another country creates a tax obligation for their employer, the OECD released updated guidelines regarding permanent establishment rules for cross-border remote work in late 2025. The framework is complex; less than 50% remote work from a different location typically does not result in permanent establishment status, but more than that necessitates a more thorough examination of whether actual commercial activity is occurring there. It’s helpful advice, but it does a better job of addressing the global aspect than it does the domestic American issue, where state-level regulations are still obstinately disjointed.
What realistic choices are there? The first steps that most experts advise are keeping a close eye on your work location, learning which states have reciprocity agreements with your home state, and consulting a tax advisor who deals with multistate returns. Some employees have made the calculation on purpose, deciding to reside in a state like Texas or Nevada where there is no personal income tax while acknowledging that, depending on the relevant regulations, their employer’s home state may still be entitled to a portion of their earnings.
The political viability of federal-level standardization is still up for debate. Legislation to address the taxation of mobile workers has been proposed by Congress on occasion, but nothing has been passed. One state tax form at a time, remote workers are mostly on their own in the interim, navigating a system that wasn’t intended for how they actually work.
