IRS Payment Plans Explained: How to File Taxes When You Work Remotely or Move Between States

Filing a tax return can become unexpectedly complicated when a person works remotely or moves to a different state during the tax year. Taxpayers in these situations often face unique income tax rules, and many are surprised to learn that they may be required to file taxes in more than one state. This process can create confusion during tax season and increase expenses when multiple forms are involved. In some cases, individuals even discover that they have been double-taxed because both their state of residence and the state of their employer claim the right to collect tax on the same income.

For many taxpayers, including the self-employed and independent contractor groups, these issues can cause financial stress. Income may come from several sources, such as wages, business earnings, or retirement distributions, and each source may be subject to different state rules. Determining the correct portion of income to report in each location requires close attention to federal law, state guidelines, and detailed instructions on each form. Families with one child, two, or three children may also need to review credits such as the earned income tax credit, which has specific qualifying child and age requirements.

The Internal Revenue Service recognizes that people who work remotely or move between states often struggle with paying the full amount owed at once. To assist, the IRS offers payment plans and other relief programs that allow eligible taxpayers to pay taxes over time. By understanding how deductions, credits, and state reciprocity agreements apply, taxpayers can claim available benefits, reduce the impact of penalties and interest, and access services that help them remain compliant.

Understanding Multi-State Income Tax Challenges

When taxpayers move between states or work remotely for a company based in a different state, they often encounter complicated income tax issues. States have rules for determining who must file taxes, which may overlap. This overlap can leave a person responsible for more than one tax return during the same year. The result is that many individuals end up double-taxed because both their home state and the employer’s state attempt to collect tax on the same income. Understanding how these rules apply is essential for anyone who wants to avoid paying more than the required amount.

• Taxpayers who move mid-year may need to file as part-year residents in two or more states.
  
  
• People who work remotely often owe income tax to the state where the employer requires work to be performed, even if the employee lives in another location.
  
  
• Independent contractor earnings and self-employed income reported on Schedule C may be subject to tax in more than one state.
  
  
• Military families transferred during the tax year generally must determine filing obligations in their home state and duty station.
  
  
• Retirees who relocate to states with lower tax rates may still owe a portion of income tax to the state they left.

A key subject in multi-state taxation is residency. States use different definitions to decide whether a person is a resident or a nonresident. Some states count the number of days spent within their borders, while others look at where the taxpayer’s primary office or home is located. Generally, if you spend more than 183 days in one state, you may be considered a resident there, even if your employer is elsewhere. This creates additional expenses because you must complete forms for each state and report income separately.

Double taxation becomes especially difficult for taxpayers who earn income in five states or more, which is common for self-employed professionals with clients across the country. In these cases, states may offer credits that reduce the percentage of income taxed more than once. However, claiming these credits requires accurate records and careful review of each notice or page of instructions. If mistakes are made, penalties and interest may apply. By learning to determine residency status and apply the correct deductions, taxpayers can remain eligible for credits that reduce the total burden.

Key Tax Considerations When You File Taxes in a Different State

When taxpayers file taxes in a different state from where they live or work, it is important to understand how income, credits, and deductions interact. Each state has tax rules, but federal law still sets the foundation for determining taxable income. Income tax can include wages, business earnings, retirement distributions, or investment returns. Taxpayers who move or work remotely must identify how each type of income is treated and which forms must be submitted. Filing the correct tax return for each location ensures compliance and reduces the risk of penalties or interest.

Income types and forms

• Wages reported on a W-2 are generally taxed by the state where the work is performed, but some states tax based on the employer’s location.
  
  
• Independent contractor income and self-employed earnings reported on Schedule C may be taxed by both the resident state and the client’s state.
  
  
• Retirement payments such as pensions or Social Security are subject to varying rules, and taxpayers must determine which state has the right to tax them.
  
  
• Moving between states during the tax year can make a person responsible for filing part-year resident returns in multiple jurisdictions.

Credits and deductions

• Many states provide a credit for taxes paid to another state, which helps prevent double taxation on the same income.
  
  
• Home office deductions allow eligible taxpayers who work remotely to deduct a portion of expenses such as utilities, rent, or mortgage interest.
  
  
• Federal credits, including the earned income tax credit, may also be available if the taxpayer has a qualifying child and meets the adjusted gross income thresholds.
  
  
• Taxpayers should note that these credits can change based on the age of dependents, filing status, and income percentage.

Filing taxes across state lines requires attention to detail in every subject area. Each form must be completed, and taxpayers should keep copies of every page submitted. A notice from one state may request additional information, so having access to prior records is essential. Such information helps prove that the full amount of income has already been reported elsewhere. Generally, careful preparation reduces expenses, ensures credit eligibility, and avoids duplicate taxation. By following federal and state guidelines, taxpayers can claim benefits, remain compliant, and save money during tax season even when living or working in a different state.

Earned Income Tax Credit and Other Federal Credits

One of the most valuable benefits for taxpayers who work remotely, are self-employed, or move between states is the earned income tax credit. This credit is a federal credit designed to support low and moderate-income taxpayers, and it can provide substantial savings at tax time. To qualify, taxpayers must meet strict rules related to income, filing status, age, and whether they have a qualifying child. The Internal Revenue Service also requires that a tax return be filed to claim the credit, even if no income tax is owed. Understanding these requirements helps taxpayers avoid missing out on the maximum credit available.

Eligibility rules and qualifying children

• A taxpayer is eligible for the earned income tax credit if adjusted gross income falls within the thresholds set by federal law.
  
  
• A qualifying child must meet age tests, residency rules, and relationship requirements.
  
  
• The credit can apply whether a taxpayer has one, two, or three children.
  
  
• Individuals without children may also qualify, but the maximum credit is lower.
  
  
• Independent contractor and self-employed income can be included if appropriately reported on Schedule C.

Maximum credit amounts and figures

• The IRS publishes updated tables showing the maximum credit for each tax year.
  
  
• These figures vary depending on filing status and the number of qualifying children.
  
  
• For example, a taxpayer with three children may receive more credit than one with only one child.
  
  
• Married taxpayers who file taxes jointly often qualify for larger amounts.
  
  
• Refunds may be increased if other deductions and credits are also claimed.

The earned income tax credit is not the only federal credit available. Families who work remotely or move to a different state may also claim the child and dependent care credit, the American opportunity credit, or credits for taxes paid to another state. Each of these programs requires complete forms and supporting documents. Taxpayers should always check the IRS website for the last reviewed or updated page to ensure they use the most current information. Such information ensures that every eligible person receives the correct benefit. Generally, reviewing all credits, deductions, and notices before submitting a return helps reduce expenses, increase refunds, and guarantee compliance with federal and state requirements.

IRS Payment Plans and How to Pay Taxes

When taxpayers cannot pay the full amount of income tax listed on their tax return, the Internal Revenue Service offers structured programs to help them pay taxes over time. These IRS payment plans are especially important for taxpayers who move between states or work remotely, since they may be double-taxed or required to file in a different state. Instead of facing penalties and mounting interest without support, taxpayers can apply for a plan that matches their financial situation. The options vary in cost, eligibility, and required forms, but all aim to provide access to manageable services under federal law.

• Short-term payment plans allow taxpayers to pay the full amount due within 180 days. There is generally no setup fee, but interest and penalties apply until the balance is cleared. They are most useful for taxpayers who need extra time to gather savings during tax season.
  
  
• Long-term installment agreements: Monthly payments are arranged when the balance cannot be resolved in 180 days. Taxpayers can pay by direct debit from a bank account or through other methods. Fees apply, although low-income taxpayers may qualify for reduced amounts. If payments stop, a notice of default may be issued.
  
  
• Currently Not Collectible (CNC) status: This status is available when income and expenses show that the taxpayer cannot make any payments. The IRS reviews adjusted gross income, deductions, and financial figures to determine eligibility. Although penalties and interest continue, active collection is suspended.
  
  
• Offer in Compromise (OIC): If the IRS agrees that full payment is impossible, taxpayers may settle for less than the amount owed. The percentage accepted depends on income, age, and complete financial details. Applications require accurate forms, and many are not approved.
  
  
• How to apply online: The IRS provides secure online access through the IRS Payments Page. Taxpayers can submit forms, review notices, and track status. The locked padlock icon confirms that such information is protected under federal security standards.

Each option has specific requirements, and taxpayers should determine which one they are eligible for before filing. Generally, selecting the correct plan reduces expenses, ensures compliance with federal credit rules, and allows taxpayers who are self-employed or independent contractors to manage obligations more effectively. Using these services means taxpayers working in a different state or handling multi-state income can remain compliant, avoid additional interest, and gain peace of mind.

Filing Strategies to Avoid Being Double-Taxed

Taxpayers who move between states or work remotely often risk being double-taxed on the same income. This happens when two states claim the right to collect income tax for the same year. To avoid paying more than the full amount owed, taxpayers should understand the rules that apply and use the available credits and deductions. Generally, taking the right steps before filing helps reduce expenses, improve eligibility for benefits, and ensure compliance with federal law.

Reciprocity agreements

• Certain states have reciprocity agreements that allow a person to pay income tax only in their state, even if the employer requires work in a different state.
  
  
• Taxpayers must file the correct form with their employer to claim this benefit.
  
  
• This process prevents withholding in two places and avoids the need to claim credits later.

Credits for taxes paid to another state

• Many states offer federal or state-level credit for taxes already paid to another jurisdiction.
  
  
• Taxpayers must include details of income and the amount paid and attach supporting forms to the tax return.
  
  
• Accurate records of every page and notice ensure that such information is complete and eligible for review.

Deductions and other strategies

• Taxpayers who are self-employed or independent contractors may deduct a portion of work-related expenses to reduce income taxed in more than one state.
  
  
• Deductions can include office expenses, travel, or other necessary costs shown on Schedule C.
  
  
• Each deduction must meet eligibility standards and be backed by receipts or reliable figures.

By applying these strategies, taxpayers can determine the correct percentage of income taxed in each jurisdiction and remain eligible for valuable credits. Such preparation makes filing taxes on time easier, avoiding penalties and interest, and securing access to refunds. Generally, understanding these rules ensures that taxpayers who work remotely or relocate during the tax year pay only the amount required by law without being double-taxed.

Self-Employed and Independent Contractors: Special Rules

Taxpayers who are self-employed or work as independent contractors face unique income tax obligations when filing in a different state. Unlike traditional employees, they are responsible for reporting all income and paying the employer and employee portions of Social Security and Medicare taxes. These rules apply under federal law and can create higher expenses than those receiving wages reported on a W-2. To remain compliant, self-employed individuals must carefully complete Schedule C and other required forms during tax season.

• Self-employed taxpayers must file taxes quarterly to cover estimated obligations and avoid penalties.
  
  
• Independent contractors are required to track every figure of income received, regardless of whether the company issues a 1099 form.
  
  
• A portion of business-related expenses, such as office supplies, travel, and utilities, can be deducted to reduce taxable income.
  
  
• When working remotely or serving clients in multiple jurisdictions, taxpayers must determine the correct percentage of income for each state.
  
  
• Accurate records of each page of expenses are essential if the IRS or a state agency issues a notice requesting such information.

In many cases, these taxpayers may still qualify for federal credit programs such as the earned income tax credit if they meet adjusted gross income limits and have a qualifying child. However, eligibility depends on age, filing status, and other details that must be reviewed carefully. Generally, self-employed individuals should seek professional services when their income comes from more than one state or when they are unsure how to apply deductions correctly. By maintaining access to records, understanding obligations, and filing complete tax returns, self-employed taxpayers and independent contractors can pay taxes accurately, remain eligible for benefits, and avoid being double-taxed across multiple states.

When to Seek Professional or IRS Help

Filing a tax return that involves more than one state can be overwhelming, especially for taxpayers who work remotely, are self-employed, or receive income from multiple sources. In many cases, taxpayers can manage filing on their own. However, when income tax obligations become too complex or a notice from the IRS creates confusion, seeking professional guidance or using official IRS services may be necessary. Acting early helps taxpayers avoid paying more than the full amount owed and ensures that every form is filed correctly.

One assistance option is free in-person tax preparation provided by IRS-certified volunteers. The IRS VITA Locator Tool helps taxpayers find local Volunteer Income Tax Assistance sites. These services are generally available to individuals with limited income, people with disabilities, seniors, and those with limited English access. This program allows taxpayers to file taxes securely, claim deductions, and remain eligible for the earned income tax credit.

Taxpayers can also benefit from digital tools designed to simplify tax season. The IRS2Go Mobile App provides direct access to IRS services, including refund status updates, payment options, and security notices. Using this app, taxpayers can confirm their information is processed, track refunds, and make payments without delay. Such information reduces uncertainty and improves compliance.

When state filings, self-employed deductions, or double-taxed income become too complicated, hiring a professional tax preparer is the best solution. Generally, professional services are recommended if income comes from a different state, if several forms are required, or if adjusted gross income exceeds basic thresholds. With expert support, taxpayers can determine the correct percentage of income taxed, claim every deduction, and resolve notices promptly.

Filing Checklist for Remote Workers and Movers

Taxpayers who move between states or work remotely for a company in a different state often face complex tax return requirements. A clear filing checklist makes it easier to stay compliant with federal law, reduce expenses, and avoid penalties or interest. By preparing early in the tax season, taxpayers can file taxes accurately, remain eligible for credits, and respond quickly to any IRS notice.

• Gather all income forms, including W-2s, 1099s, and Schedule C for self-employed or independent contractor income.
  
  
• Collect records of deductions and expenses such as office costs, travel, utilities, and other items that qualify under federal and state rules.
  
  
• Confirm eligibility for credits like the earned income tax credit, state credits for taxes paid to another jurisdiction, and other federal credit programs.
  
  
• Track the filing date for each tax return and save every page, figure, and form submitted. This ensures that such information is available if a state or the IRS issues a notice.
  
  
• Review online services such as the IRS2Go mobile app or the IRS website to confirm the last reviewed or updated page for current guidance.

A complete filing checklist reduces confusion when working remotely or in a different state. Taxpayers should generally keep all documents for at least three years, including income figures, deduction details, and notices. Maintaining access to records helps determine the correct percentage of income taxed and protects eligibility for refunds, savings, and federal credits. With proper preparation, taxpayers can pay taxes accurately and avoid being double-taxed.

Frequently Asked Questions (FAQs)

Do I need to file in multiple states if I work remotely?

When you work remotely for a company in a different state, you may still need to file taxes in both locations. Some states apply residency rules, while others tax based on where your employer requires the work. Generally, reciprocity agreements prevent being double-taxed, but not every state participates. Reviewing each tax return requirement carefully ensures that you pay taxes only for the portion of income subject to state law.

What happens if I move during the tax year?

If you moved to a different state during the tax year, you are often considered a part-year resident in both states. This means you must file a tax return in each state, reporting the income earned when you lived there. Such information is critical for avoiding errors and penalties. Keeping accurate records of your moving date, expenses, and employer forms ensures compliance with federal and state requirements.

Can I claim a home office deduction if my employer requires it?

Taxpayers who work remotely can claim a deduction for a home office if their employer requires the space to be used exclusively for work. Some expenses, such as rent, utilities, or maintenance, can be deducted. The IRS allows both a simplified method and a detailed method. To remain eligible, taxpayers must complete the correct forms and maintain records that prove the office is used solely for business purposes.

What if I get a notice about taxes from a different state?

Receiving a notice from a different state does not always mean you owe additional income tax. Often, the state requires clarification about residency or requests supporting figures for credits already claimed. Responding promptly with complete forms and accurate documentation helps prevent penalties or interest. Taxpayers should also confirm the page was last reviewed or updated for official instructions. Professional services or IRS assistance may be necessary if the subject remains unclear.

How do IRS payment plans work for the self-employed

Self-employed taxpayers and independent contractors can apply for IRS payment plans if they cannot pay the full taxes owed. Options include short-term payment plans, long-term installment agreements, and, in some cases, an Offer in Compromise. Eligibility depends on adjusted gross income, expenses, and financial details submitted. Applications can be made securely through the IRS Payments Page. These services ensure access to federal relief programs while keeping every tax return complete and accurate.