Author Topic: Generating revenue in one state while living in another state  (Read 361 times)

Daisy

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Generating revenue in one state while living in another state
« on: January 11, 2019, 10:13:41 AM »
Hello, posting here to see if there are any tax experts here that can help my sister work out a remote working opportunity at her current job.

My sister is a paralegal in South Carolina and wants to move to Florida. She is very good at what she does, so thanks to my encouragement she talked to her boss and asked to work remotely for the firm. Her boss was very receptive to the idea.

The only issue brought up was that this is a small firm that only operates in South and North Carolina with clients in those states. Her time is actually billed to the clients so the boss doesn't know if there will be tax issues since the firm doesn't have an office or clients in Florida.

At first I told her I didn't think it would be an issue since they pay her an income, not dividends or anything like that, but she said technically she generates revenues by being billed for her time to the client.

The firm was going to look into the tax implications. It is possible they may deny her remote working request if this is an issue.

She wants me to come up with a plan to propose to the firm in case it is an issue. I told her I didn't know, but have at my disposal a bunch of financial geeks that may know. :-)

YttriumNitrate

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Re: Generating revenue in one state while living in another state
« Reply #1 on: January 11, 2019, 10:31:06 AM »
I live in Indiana, and work in Illinois most of the time, but also work in Indiana from a home office some of the time. I'm also the only employee at my firm that lives outside of Illinois and works part-time in Indiana. Our payroll is done through Paychex, and I believe there were a few issues with setting up another state's workers comp, etc. but after that it has been smooth sailing.

Since she'll be living and performing work in Florida, she'll get to pay Florida income taxes (which happen to be 0%) rather than South Carolina's 7%.

TVRodriguez

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Re: Generating revenue in one state while living in another state
« Reply #2 on: January 11, 2019, 11:06:01 AM »
I am not an income tax specialist by any means, so take all of this with grains of salt, but if she becomes an independent contractor (working when and where she wants), then it's my understanding that the firm can issue a 1099 to her for the payments they make to her annually.  She can then use the 1099 to report her income on her 1040 and pay her income taxes that way (and then quarterly estimates going forward).  The firm might prefer to have an independent contractor and no longer be responsible for withholding payroll taxes.  If she were to do this, she should ask for an increase in her hourly pay rate to offset the increased tax burden on her (she would be responsible for paying her own payroll taxes).

walkwalkwalk

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Re: Generating revenue in one state while living in another state
« Reply #3 on: January 11, 2019, 12:19:33 PM »
As I DO prepare taxes, please do not listen to TVRodriguez. She is an employee and would still be acting in an employee capacity. Unless she didn't want full time hours (set by the employer usually)or access to their software, etc. then she would still be an employee.

TVRodriguez

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Re: Generating revenue in one state while living in another state
« Reply #4 on: January 11, 2019, 12:25:19 PM »
As I DO prepare taxes, please do not listen to TVRodriguez. She is an employee and would still be acting in an employee capacity. Unless she didn't want full time hours (set by the employer usually)or access to their software, etc. then she would still be an employee.

Oh, great point on the full-time thing--I was imagining someone working on projects, which a lot of paralegals do.  If she were to only work on a project basis and get paid hourly for the time worked on that project, wouldn't that be considered an independent contractor?  That's how a lot of contract attorneys I know work, and that's the general practice I've seen, but income tax is not my area so I've never looked into it.

walkwalkwalk

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Re: Generating revenue in one state while living in another state
« Reply #5 on: January 11, 2019, 12:30:52 PM »
There are many factors, such as who controls when the work is done, who reviews the work/controls how it should be done, who supplies the computers/software/devices.

this link discusses it:  https://www.irs.gov/taxtopics/tc762

I just don't think it would be advantageous to her since there may be times between "projects" whereas an attorney can afford to not be paid for awhile. It is also my understanding that paralegals help with some general admin work as well, so I really don't think projects fit in with this line of work.

TVRodriguez

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Re: Generating revenue in one state while living in another state
« Reply #6 on: January 11, 2019, 01:13:32 PM »
There are many factors, such as who controls when the work is done, who reviews the work/controls how it should be done, who supplies the computers/software/devices.

this link discusses it:  https://www.irs.gov/taxtopics/tc762

I just don't think it would be advantageous to her since there may be times between "projects" whereas an attorney can afford to not be paid for awhile. It is also my understanding that paralegals help with some general admin work as well, so I really don't think projects fit in with this line of work.

Thanks for the clarification.  Definitely depends on the facts and circumstances involved.

Daisy

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Re: Generating revenue in one state while living in another state
« Reply #7 on: January 11, 2019, 08:15:14 PM »
Lots of good comments.

I sent my sister a link to this thread and now she wants to join the forum and ask some followup questions. This was my secret way to get her to read more about financial independence!

Oh sister, where art thou?

maizeman

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Re: Generating revenue in one state while living in another state
« Reply #8 on: January 11, 2019, 08:21:23 PM »
Depending on the details, having employees in a given state can create a "nexus" that requires the company to file a state income tax return in that state. We ran into this with one of mine when we naively hired a guy part time from CA to work on a project one year.

...a bunch of extra paperwork and hassle.

YttriumNitrate

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Re: Generating revenue in one state while living in another state
« Reply #9 on: January 11, 2019, 09:32:04 PM »
Depending on the details, having employees in a given state can create a "nexus" that requires the company to file a state income tax return in that state. We ran into this with one of mine when we naively hired a guy part time from CA to work on a project one year...a bunch of extra paperwork and hassle.
Do you happen to be in New York? When I was looking into what needed to be done for out of state employees, it seemed like there were the general rules that applied to 49 out of the 50 states, and then the quadruple pain-in-the-ass rules that applied to New York.

maizeman

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Re: Generating revenue in one state while living in another state
« Reply #10 on: January 11, 2019, 09:48:26 PM »
Fortunately, no I'm not based there, but I've heard the same reputation.

Grafter

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Re: Generating revenue in one state while living in another state
« Reply #11 on: January 12, 2019, 10:11:41 AM »
Ah, a fun thought exercise.  As always, if you want professional tax advice, talk to a local tax professional. 

That being said, there are multiple potential issues.  Like some of the others have touched on, will she be an W-2 employee, or will she be an independent contractor, which in turn come down to actual rights and responsibilities.  Walkwalkwalk has given you a decent link about it.  Though I've definitely heard of people doing contract research for law firms.

If she is an employee, she most likely than not will create nexus in Florida for the law firm.  As that will potentially cause the law to be subject to income tax reporting (depending on the law firm entity), sales tax reporting, employment taxes, franchise tax (if FL has one), etc.  How difficult the employment tax situation still depend on what taxes the firm is subject to and if they do payroll in house or through a 3rd party (such as ADP). 

I'm not aware of any special rules about telemuting employees in FL, NC, SC (as this is an emerging area of tax law and different states treat things differently), but you would want to look to be sure.

As for your sister.  If she is being treated as an IC, she will be responsible for both the EE and ER portion of SE taxes, benefits, etc.  And depending on if she travels back to NC and SC to do work, after moving to FL, she may have income tax filing requirements in multiple states (both as an IC and a W-2 employee).

MESinSC

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Re: Generating revenue in one state while living in another state
« Reply #12 on: January 13, 2019, 05:22:11 PM »
Thank you all for your replies to my sister, Daisy's question on my situation.  Here's a bit more information about the situation. I am a full time, nonexempt paralegal that works for a law firm that has offices in the Carolinas and Georgia. I would prefer to stay as an employee for the benefits. That said, I do not work on a project basis.  I spoke with my supervising attorney and she mentioned that there may be a tax issue or more like a withholding tax issue for the firm if I work remotely in FL on a temporary basis.  Does this help clarify my inquiry?
 

reeshau

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Re: Generating revenue in one state while living in another state
« Reply #13 on: January 15, 2019, 04:26:37 AM »
Asking here is all well and good to get an idea, but not following through with asking a local tax professional is dumb.  Spend the money on a consultation, and avoid expensive mistakes.

Here is South Carolina's opinion on the subject:

 What are the filing requirements for a nonresident receiving income from South Carolina?

A nonresident individual receiving South Carolina income from wages, rental property, businesses, or other investments in South Carolina, must file an SC1040 South Carolina Individual Income Tax Return and Schedule NR Nonresident Schedule.
See Code Sections 12-6-1720 and 12-6-2220.​

From: https://dor.sc.gov/tax/individual-income/faq