Living in Texas, working remotely for an out-of-state employer
Your federal return is the same. Whether the employer's state can tax your wages depends on where you work, and on a rule a few states apply differently.
Quick answers
- Do I owe state income tax if I live in Texas and work for a company elsewhere?
- Often not, because wages are generally taxed where the work is performed and Texas has no income tax. A few states apply a different rule to remote workers, so check that state's department.
- My employer withholds for their state. Can I stop it?
- Ask payroll which state they are withholding for and why, and give them your current address. If the withholding was wrong, the money comes back through that state's return, not the federal one.
- Can I deduct my home office as a remote employee?
- Generally no. The home office deduction is for self-employed people. Employees cannot deduct unreimbursed work expenses as miscellaneous itemized deductions under current law.
Living in Texas does not change your federal return, and Texas itself has no personal income tax. Whether the state your employer sits in can tax your wages is a separate question, and it depends on where the work is done.
The federal picture first
Nothing on the federal return changes because the company is somewhere else. Wages are wages, they arrive on a W-2, and they are reported the same way whether payroll is a mile away or a thousand. The one thing worth saying plainly, because it is the most common wrong assumption, is that working from home does not give an employee a home office deduction. That deduction belongs to a business. Employees cannot deduct unreimbursed work expenses as miscellaneous itemized deductions under current law, and the narrow categories that survived, such as Armed Forces reservists and fee-basis state or local government officials, deduct travel expenses as an adjustment to income rather than claiming a home office. The home office test covers who can take it; your W-2 covers the form your wages arrive on.
The general rule
Wages are generally taxable by the state where the work is physically performed, and by the state where you live. Texas taxes neither wages nor other personal income, so for someone living in Texas and working at a desk in Texas, those wages usually carry no state income tax at all, whatever address is printed on the employer's letterhead. That is the ordinary case, and for most remote workers it is the whole answer.
The exception a few states apply
A few states apply a different rule to remote workers. Where such a rule applies, days you work from home for your own convenience, rather than because the employer requires you to be there, are treated as days worked in the employer's state. That state may then tax those wages even though you never set foot in it, and you would need its nonresident return to sort out what is owed.
Whether your employer's state is one of them, and how far the rule reaches, is a question of that state's law. There is no federal answer and no federal form that settles it. The IRS keeps a directory of state websites, which is the fastest route to the right revenue department to ask.
Getting payroll right
Give your employer your current address in writing, then ask which state they are withholding for and why. Those two facts explain most of the surprises on a pay stub. If tax is being withheld for a state you have no liability to, the money does not come back through your federal return. It comes back through that state's return, filed to claim what was withheld.
An employer with no presence in Texas may still need to register here for payroll purposes, and that can take time. It is the employer's problem rather than yours, but it explains why the state line on a pay stub sometimes takes months to change.
Travel days
Days spent working at the employer's office are days worked in that state, and states differ on how many of them it takes before they want a return. So keep a calendar as the year goes: the flights, the hotel nights, the days you were actually in the building. The calendar is the evidence, and nobody reconstructs a year of travel accurately from memory in April.
What Texas wants instead
There is no Texas individual income tax return, so nothing here has to be filed on your wages. What Texas does collect is sales and use tax on much of what you buy and local property tax on what you own, neither of which comes with a return of yours to file. And if the remote work is really contract work run through your own entity, the state's franchise tax report is a separate annual filing that entity may owe. The Texas franchise tax report covers who has to send one.
If you are a contractor rather than an employee
If the company pays you without withholding and sends a 1099 rather than a W-2, the payroll section above does not apply to you at all. The money is business income on Schedule C, it carries self-employment tax on top of income tax, and nobody is paying anything in on your behalf, so quarterly estimates are yours to make. The state question changes shape as well, because business income is sourced under rules of its own rather than by where a payroll department happens to sit.