Remote work has changed where many people earn their income. An employee may live in Virginia while working for a company headquartered in another state. A business owner may manage a Virginia-based company while employing remote workers across several states. Some professionals even split their working time between two homes in different states.

While these arrangements can provide flexibility, they can also make state taxes more complicated.

Where you live, where you physically perform your work, where your employer is located, and how much time you spend in another state can all potentially affect your tax obligations. For Virginia residents and businesses, understanding these issues before tax season can help prevent unexpected filing requirements, incorrect withholding, and potential tax bills.

Why Does Remote Work Affect State Taxes?

State income taxes are generally determined separately from federal income taxes. Each state establishes its own rules regarding residency, income sourcing, withholding, and filing requirements.

For someone who lives and works entirely in Virginia, determining where income should be reported may be relatively straightforward. But consider an employee who lives in Virginia and works remotely for a company headquartered in another state.

Which state gets to tax those wages?

The answer depends on several factors, including the laws of both states and where the employee actually performs the work.

Virginia generally taxes residents on their income even when that income is earned outside Virginia. Meanwhile, other states may impose their own taxes based on where work is performed or other state-specific sourcing rules.

That means remote workers should not automatically assume that their employer's location determines where they owe state income tax.

Virginia Residents Working for Out-of-State Employers

If you are a Virginia resident but work remotely for an employer located somewhere else, your income will generally still be included when calculating your Virginia income taxes.

This can become more complicated if your employer's state also considers some or all of your wages taxable there.

For example, imagine that you live and perform your work from your home in Virginia but your employer's primary office is located in another state. Depending on that state's rules, you could encounter questions involving:

• Whether you need to file a nonresident return in the employer's state

• Which state considers the wages taxable

• Whether your employer is withholding taxes for the correct state

• Whether a credit for taxes paid to another state is available

• Whether you need to adjust your withholding

The rules can vary considerably from one state to another, making it important to evaluate the specific states involved rather than relying on a general remote-work rule.

What If You Work From Multiple States?

Another common situation occurs when someone travels or temporarily lives outside Virginia while continuing to work remotely.

Suppose you normally live in Virginia but spend several months of the year at a second home in another state. You continue performing the same job remotely while you are there.

You may now have activity connected to two states.

The second state may have rules determining when a nonresident performing work within its borders generates taxable income. Spending substantial time there can also raise questions about residency.

Keeping accurate records becomes particularly important in these situations.

Remote workers who regularly work across state lines may want to document where they performed their work and approximately how many days they spent working in each state. Waiting until tax season to reconstruct an entire year's travel can make an already complicated return even harder to prepare.

Residency and Domicile Matter

One of the most important concepts in multi-state taxation is residency.

Virginia distinguishes between different forms of residency, including domiciliary and actual residency. Your domicile generally represents your permanent legal home, while actual residency can depend in part on where you physically maintain a place to live and spend your time.

Simply spending time outside Virginia does not necessarily mean you stop being a Virginia resident for tax purposes.

Similarly, maintaining connections to multiple states can create situations where residency needs to be examined more carefully.

Factors surrounding a move may include your permanent home, where you spend your time, and whether you genuinely changed your domicile.

This is one reason moving to another state while keeping a remote position deserves additional tax planning. A move that seems simple from an employment standpoint may have significant state tax consequences.

Watch Your State Tax Withholding

Your paycheck is another important place to look.

Employers generally withhold state income taxes based on information about where an employee lives and works. If your work arrangement changes but your payroll information does not, taxes could potentially be withheld for the wrong state.

For example, an employee who permanently relocates to Virginia but continues to have another state's taxes withheld may discover the problem months later.

That can create additional work at tax time and potentially require filing a return with another state to request a refund of taxes that were incorrectly withheld.

Whenever your primary work location changes, review your paystub.

Check which state taxes are being withheld and notify your employer if your address or working arrangement has changed.

Virginia Has Reciprocity With Certain Nearby States

Virginia workers should also be aware that Virginia has reciprocal agreements affecting certain wage earners who live in neighboring jurisdictions.

Virginia's current nonresident filing instructions include special treatment for qualifying residents of Kentucky, Maryland, Pennsylvania, West Virginia, and the District of Columbia.

These agreements can allow qualifying employees to pay income tax to their state of residence rather than the state where they work.

However, reciprocity does not automatically resolve every multi-state tax situation. The type of income you receive and the states involved still matter.

Business income, investment income, rental income, and other sources may be treated differently from wages.

Remote Employees Can Create Tax Questions for Businesses Too

Remote-work tax issues are not limited to individual employees.

Business owners also need to pay attention when employees begin working from other states.

An employee physically working in another state can potentially create new employer responsibilities involving payroll registration, state withholding, unemployment taxes, and other compliance requirements.

Depending on the circumstances and the state's laws, an employee's presence may also contribute to a business establishing a taxable connection, commonly referred to as nexus, with another state.

For a growing company, this is something to consider before hiring employees nationwide.

A Virginia business that once operated entirely within the Commonwealth could gradually become a multi-state employer as it hires remote talent. The company's accounting, payroll, tax planning, and financial systems may need to evolve along with that growth.

Business Owners Should Include Remote Work in Financial Planning

Multi-state expansion is not only a tax preparation issue. It can also become a financial planning issue.

Adding employees in new states may introduce additional administrative expenses, payroll obligations, professional fees, insurance considerations, and tax compliance costs.

Before expanding a remote workforce, business owners should understand how those costs could affect cash flow and profitability.

This is where financial forecasting can be especially useful.

Building expected employment and compliance expenses into your budget allows you to evaluate the true financial impact of expansion rather than focusing only on an employee's salary.

For growing businesses, working with a Fractional CFO and financial planning professional can provide greater visibility into cash flow, budgeting, forecasting, profitability, and strategic tax positioning as operations become more complex.

Don't Wait Until Tax Season to Address Multi-State Work

One of the biggest mistakes remote employees and business owners can make is waiting until they prepare their annual tax return to think about where work was performed.

By then, incorrect withholding may have continued for months, records may be incomplete, and a business may already have developed filing requirements in another state.

Instead, consider reviewing your tax situation whenever a significant change occurs, such as:

• Moving into or out of Virginia

• Beginning a remote position with an out-of-state employer

• Spending extended periods working from another state

• Hiring an employee who lives outside Virginia

• Allowing an existing employee to relocate permanently

• Expanding business operations into another state

Tax planning throughout the year can help identify these issues earlier and give you more time to respond.

Get Ahead of Remote Work Tax Questions

Remote work gives employees and businesses more flexibility, but that flexibility can create additional tax considerations when work crosses state lines.

If you live in Virginia and work for an out-of-state employer, regularly work from multiple states, or operate a business with remote employees, understanding your state tax responsibilities is an important part of protecting your financial position.

K.G. Tax & Accounting Solutions provides Taxes & Tax Planning services designed to help individuals and businesses approach their taxes strategically throughout the year. For business owners who need deeper financial guidance, our Fractional CFO & Financial Planning services provide support with budgeting, forecasting, cash flow management, financial reporting, and strategic tax positioning.

Don't wait until filing season to discover that your remote-work arrangement created a tax issue.

Contact K.G. Tax & Accounting Solutions today to review your tax and financial strategy and prepare for what comes next.

This article is intended for general informational purposes and does not constitute individualized tax or legal advice. State tax treatment depends on your specific circumstances and the laws of the states involved.