Remote work has proliferated as a work arrangement since the COVID-19 pandemic began in 2020. While its popularity has declined since its Spring 2020 peak, remote work remains far more common today than it was before the pandemic (see Figure 1). Research from Nicholas Bloom and others found that last month, nearly 13 percent of workers were fully remote, and an additional 28 percent worked in a hybrid arrangement.
By Scott Lincicome and Ilana Blumsack
In our chapter on remote work in Empowering the New American Worker, we explain how remote work can benefit both workers and employers, and we identify several state policies that make remote work needlessly difficult (especially across state lines). This includes:
- State income tax filing and withholding requirements that often require workers to file state income taxes if any income is earned in that state, and tax withholding thresholds that often force employers to withhold state income taxes from employees after just one day of work in‐state (see Figure 2).
- Convenience of the employer rules that base an employee’s state income tax obligation on the location of their employer, not the employee’s actual residence. Four states utilize these rules, thus taxing workers in states where they neither live nor work (if remote) and potentially subjecting them to double‐taxation.
Our chapter proposes general reforms to these and other policies affecting millions of American remote workers, but we didn’t dig into individual state policies and regulations or identify the states offering best practices. Fortunately, Andrew Wilford of the National Taxpayers Union has now released a handy ranking of states based on their remote work policies, in particular rules on tax filing thresholds, tax reciprocity agreements (agreements between neighboring states allowing commuters across state lines to only pay taxes to their state of residence), “convenience of the employer” rules, state income tax rates, and tax withholding thresholds. Filing thresholds, reciprocity agreements, and withholding thresholds are each worth a maximum of 10 points, while the tax rates component is graded out of five points. The study subtracts five points from states with “convenience of the employer” rules, and provides the following results:
State Rankings, ROAM Index
(Source: Andrew Wilford, “The 2023 ROAM Index: How State Tax Codes Affect Remote and Mobile Workers,” National Taxpayers Union, January 26, 2023.)
The highest performing states are those without an income tax (e.g., Florida, Texas, and Washington) because they avoid tax filing, withholding, or other issues that only accompany an income tax. Of the 41 states with an individual income tax, however, West Virginia is the clear winner. The Mountaineer State’s reciprocity agreements cover 95 percent of affected workers, the tax withholding threshold is one of the highest in the nation at 31 days, and the state does not have “convenience of the employer” rules. That’s right in line with our proposals in Empowering, which recommended that states drop or avoid “convenience of the employer” rules and require workers to have at least 30 days of residence before triggering state income tax filing or withholding obligations. Other states, such as Minnesota (with a high in‐state wage threshold equivalent to roughly 30 days of work) and Hawaii and Arizona (with respective tax withholding thresholds of 61 and 60 days of in‐state residence), also score well in this regard.
On the flip side, Delaware and Nebraska actually earn negative scores, largely due to the five‐point deduction for “convenience of the employer” rules. And several states have “global income” thresholds for tax filing, which require taxpayers to file taxes on all income earned, even if the income was mostly earned out‐of‐state. None of that is good for the millions of Americans who now work remotely and who, because of remote work, now have much greater freedom to choose where they can live.
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