How does a nomadic 1099-er pay state income tax?

November 3, 2014 7:51 PM

Suppose someone has the ability to work 100% remotely in the US for a company as a 1099 contractor. He has a permanent residence in state A. If he travels around the country over the course of the year, 3 months at a time in a new state, would he need to pay some state income tax for each state, or would he pay state income tax for state A only? If my thinking is correct, that it depends on state law, then how is this enforced if he is, say, living in an RV?
posted by alligatorman to Work & Money (12 answers total)

In these cases it's important to have a story and stick with it. Residence, as you've seen is a sort of tricky thing anyhow but the IRS is mostly concerned with your legal residence (and doesn't delve too deeply 99% of the time) so blabla see an accountant but realistically just have a very good reason why State A is your legal residence and states B, C and D are not. But yes technically if you lived in State B for three months there would be a situation where you should legally pay taxes to State B. I do work in many other states and some of them are notable in withholding taxes from the money they pay me even though they know I don't live in that state.

RVers actually deal with this a lot. Most of them have a residence that is nomad-friendly such as North Dakota where they go for some requisite amount of time to qualify and then they don't have to pay state income tax at all. You can read this article, written for RVers by a CPA that spells out some of the things people have to think about. And here's a shorter article that spells out a few key things to think about.
posted by jessamyn at 8:06 PM on November 3, 2014

Depends on the state, but many want you to pay the state income tax once you've worked there for 30 days(Virginia?), or maybe less. Find a good accountant experiencd in the details.
posted by TheAdamist at 8:10 PM on November 3, 2014

The 1099 mostly makes you a ghost. Most people in that situation reside in cheap state A, just file a return there and never hear from the other states. I'm not saying it's legal, but it's common.
posted by michaelh at 8:13 PM on November 3, 2014

RV people establish a domicile (up until very recently South Dakota was the best deal, including the costs of registering your vehicle, but some of the benefits have gone away; Texas is popular because no state income tax, and apparently Florida is another one whose state laws are more amenable than most), and if you were looking for more information you might poke around the big RV forums for more details.
posted by Lyn Never at 9:28 PM on November 3, 2014

Yeah, this is a frequent question on RV forums. We (my ex-husband and I) became South Dakota residents for this reason. It's really easy to do; they have a special status for it. Here's my previous, extremely similar question on the subject.
posted by desjardins at 9:40 PM on November 3, 2014

I see that I can't update that question, but we did end up staying in WI the entire time, so I can't provide our specific experience on moving around.
posted by desjardins at 9:42 PM on November 3, 2014

Some states you owe income tax if you're only there for a few days. It's enforced in the sense that if they do in future have reason to catch you--for example if you later end up in a state for a longer period and get audited--then you can get hit with very large nonfiling penalties and interest, and if you've never actually filed, the statute of limitations never starts running and taxing authorities have rather broad rights to force you to prove you don't owe them tax rather than the other way around.

In practical terms it may wind up to not be a large risk in a given circumstance, but it's usually best to get a professional and do the whole thing properly. It's that nonfiling thing that opens up the most risk. By nonfiling, they don't know to look at you, but the potential issues get larger. Over a long enough period of time, especially if you're deliberately claiming residence in a state without an income tax or with one that's very low, you could eventually hit a level where the amount they think they're owed could hit the level where they start taking an interest in criminal prosecution. Does it happen often? Dear god, no, most of the time they never notice. But still a better idea not to go deliberately filing inaccurate returns.
posted by Sequence at 12:09 AM on November 4, 2014

Be cautious about accepting any work in New York, city or state. They will track you down and tax you for even a few days. If you do work in NY, make sure that your pay rate makes up for the tax hassles.
posted by Midnight Skulker at 6:29 AM on November 4, 2014

If you're a 1099 contractor, you're self employed and running a business. You would have to allocate and apportion your self-employment income according to the various states in which you do business throughout the year. This can be very complicated, as each state has its own apportionment rules. It is even more complicated if you operate a web-based business, because states are just now starting to draft rules regarding sourcing of this type of income - many states have no rules (so you have to make an educated guess as to how to source), and the rules that do exist may conflict with each other (leading to double taxation or "nowhere" income). In addition, you may need to register to do business in the various states and/or owe additional taxes (gross receipts, occupational, sales/use, etc.).

TL;DR you need a CPA who is very familiar with multistate apportionment.
posted by melissasaurus at 7:25 AM on November 4, 2014

When I worked for a very large company doing consulting around the country, said very large company got into trouble for not taxing people in each state where they worked. So for several years in a row, I got W-2s for 7-12 states. I had to file in each state and depending on the state either got a complete refund, or got credit in my home state for tax paid to another state. It was complicated and I found a good CPA who was familiar with multi-state tax apportionment.

It is different if you work from one location and remotely work for companies in another state - if you are not physically located in the state for the work I think you just owe taxes to the state in which you physically performed the work. That said, I am not an accountant, I am not your accountant, and if I were you I would seek advice from an accountant.
posted by bedhead at 9:11 AM on November 4, 2014

Note also that you often need to file in the state where you work even if you don't live there (e.g. commuters from New Jersey who work in Manhattan need to pay New York state tax). This may make residency not matter when it comes to how many returns you file. (This is the state *where you do the work* and not the state where your employer is located.)

When it comes to enforcement, the state government gets a copy of every 1099 you get, which is how they would know about you.

As Sequence mentions, there is no statute of limitations if you never file. This is reason enough to file state tax returns broadly!
posted by goingonit at 1:29 PM on November 4, 2014

Thanks for the answers everyone. Just as an FYI, I'm not trying to cheat the system, just genuinely curious.

When it comes to enforcement, the state government gets a copy of every 1099 you get, which is how they would know about you.

goingonit, wouldn't the 1099 be sent to the State A government? If so, then how would another state ever know that the person worked there?
posted by alligatorman at 3:55 PM on November 4, 2014