While the COVID-era peak has mostly leveled off, remote work remains popular in Washington. Cities like Seattle are powerhouses for freelancers and remote workers. With the younger generation increasingly preferring remote work or work from home setups, flexible setups may be here to stay.
It is crucial for any Washington remote workers to understand how state and federal laws work. You may be one of the many people living in Washington and working hybrid or WFH setups. The state’s tax systems affect you in ways that you might not expect. When working across state lines, employee and employer responsibilities may get muddled.
What states levy personal income taxes?
Washington does not levy a personal income tax on wages and salaries. As a remote worker, you do not have to pay a personal income tax to Washington. The state only imposes a tax on specific high-value capital gains.
However, if your company is based in another state, you may be subject to the income tax laws of that state. Always check which state your company is based in. States which have “convenience of employer” rules may tax you, even if you are a non-resident.
For example, New York and Pennsylvania tax personal income based on where employers are headquartered. The only exceptions are when reasons for remote work are for absolute necessity.
How else does WFH taxation affect you?
Even without a personal income tax, you will be subject to mandatory Washington payroll taxes and federal income taxes. Washington levies mandatory state payroll taxes such as WA Cares Fund for WFH employees. You are also required to pay federal payroll taxes like the Federal Insurance Contributions Act (FICA) taxes.
What happens with incorrectly withheld taxes?
Aside from special cases, your employer should generally not apply taxes from other areas. Check in with HR to ensure that your taxes are going to the right states. If you do spot errors in taxation, you will need to file a non-residency tax return to claim a refund. The refund process may take some time based on the state.
In Washington, the main source of errors is when out-of-state employers apply taxes based on their headquarters. If you believe your employer has taxed you incorrectly, consider contacting a CPA or a tax law professional to determine your next steps.