The General Rule: Where You Work Determines Where You Pay
For most remote workers, taxes are owed to the state where you physically perform the work — your home state. If you work from your home in Colorado for a company headquartered in New York, Colorado has the primary claim on your wages. However, several states have rules that complicate this significantly.
New York State asserts the right to tax income earned by anyone working for a New York employer — even if the employee works remotely from another state — unless the remote work is required for the employer’s convenience. This 'convenience of employer' rule can result in New York taxing your bonus even if you never set foot in New York.
States That Withhold Based on Employer Location
New York is the most notable state that can tax remote worker income based on the employer’s location rather than where the work is performed. Other states that have applied similar reasoning include Pennsylvania and Arkansas. If your employer is in one of these states and withholds state tax based on the employer’s location, you may need to file in both states — then claim a credit for taxes paid to the non-resident state.
Remote work bonus tax withholding scenarios by state combination
| Your State | Employer State | Which State Withholds? | Do You File in Both? |
|---|---|---|---|
| Colorado | Texas (no income tax) | Colorado only | No — TX has no income tax |
| Illinois | California | Employer withholds CA; you owe IL | Yes — claim credit on IL return |
| New Jersey | New York | NY likely withholds (convenience rule) | Yes — NJ credit for NY taxes |
| Washington | Oregon | Employer withholds OR | WA has no income tax — file OR only |
| Georgia | Georgia | Georgia only | No multi-state issue |
How to Avoid Paying Tax in Both States
- Claim a resident credit for taxes paid to the non-resident state on your home state return
- Ensure your employer withholds for the correct state — update your withholding certificate
- If your employer withholds for the wrong state, you may need to adjust W-4 and make estimated payments to your home state
- File returns in both states if required — resident return in home state, non-resident return in employer state
- For NY convenience rule situations, document that remote work was required by the employer, not by your own preference
- Consult a tax professional if you have income in more than two states
What Happens at Bonus Time for Remote Workers
When a bonus is processed, your employer’s payroll system typically withholds state tax based on the work location code on file. If your employer code still shows the office state rather than your home state, your bonus may be incorrectly withheld. Update your work location with HR before any large supplemental payment to ensure correct state withholding.
Calculate Your Bonus Tax in Your Home State
Select your resident state to see the correct withholding — even if your employer is headquartered elsewhere.