Let's say your home office is in NY, in NY I believe you pay income tax if you are there more than half of the year as you are classified as a resident, but in consulting you are going to be in your home office on Fridays and at your apartment for Saturdays and Sundays. This means you would not be a resident in the state where your home office is located as you are only there 3/7 days a week, correct? If you are on one client in let's say IL for the whole year, would you be a resident in the state of IL for state income tax even though you do not own any property there? Lastly, odds are you will have at least two clients a year meaning you wouldn't meet the residency requirement for any state as you did not live there for more than half of the days in the year i.e. Living in NY, Client in IL for Jan-June from Mo-Th, Client in CA for July-Dec from Mo-Th. So how is your state income tax done or am I look way too deep into this?
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I have no idea about residency, but I know many consultants pay tax in every state in which they work, for the portion of their salary associated with work in those states.
Hi, residents pay tax on income earned from all sources. You receive tax credits for the taxes paid to other states. Let's take an example, lets assume you live in California and receive $30000 from a building rented in another state. California will tax you for the $30000 but gives you a tax credit of $3000 for the tax you will pay in the other state. This is just an example, it differs from state to state.
The credit is typically the lesser of A) what you paid or B) what you would have paid on that income in your home state. If your home state has a lower tax rate (e.g 2%) than the work state (e.g. 5%), your home state will only give you credit for the 2%. This means you are effectively taxed at the higher rate. Firms typically reimburse if the works state taxes are higher than you would have paid at home.
Worth noting that Illinois does not allow work state tax credits under most conditions (notably if your firm has an office in IL). You pay full weight in work state and home/IL, resulting in double taxation. It's been litigated thoroughly. Again, most firms compensate for this.
File in the state you are registered to vote, have a license, are permanently domiciled, etc. Regardless of where the client is located, you aren't paid by the client you are paid by your home office. Only people who have to worry about multiple state stuff are partners.
Residency test isn't just number of days, it usually includes a "facts and circumstances" provision or a "place of domicile during the taxable year" provision that clearly covers consultants.
I generally ended up paying state tax in the 2-3 states where I worked for more than a couple weeks. You'll pay less in your home state because a bunch of your income was earned elsewhere, but your back office should make it pretty seamless / with no major surprises at tax time
Yeah I would assume your home office would take care of any tax discrepancies.
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