Multi-State Taxes for the Self-Employed in 2025: What You Need to Know
If you’re self-employed and working across state lines in 2025, your tax situation may be more complicated than you expect. The rise in remote work has blurred state boundaries, but state income tax obligations haven’t disappeared. Understanding how multi-state taxes apply to your business is essential to avoiding penalties, overpayments, or audits.
Who Needs to File Taxes in More Than One State?
If you physically perform work in more than one state or provide services to clients located in other states, you may owe taxes in each of those jurisdictions. States generally impose income tax based on two primary concepts:
- Residency: Your home state usually taxes all your income, regardless of source.
- Source-based Taxation: States can also tax income earned within their borders, even if you don’t live there.
This means a remote web designer based in Texas but doing contract work in California may have a California filing obligation—despite Texas having no income tax.
What If You Only Worked in Another State Temporarily?
Even a short business trip or a remote working stint in another state may trigger income tax filing requirements. Some states, like New York, have a “convenience of the employer” rule that taxes remote workers even when the work is done out of state.
Others have reciprocal agreements with neighboring states to avoid double taxation—but these rules vary widely.
How to Avoid Double Taxation
To reduce or eliminate double taxation, your home state may offer a credit for taxes paid to other states. This helps offset your home state tax liability for income already taxed elsewhere. However, the rules and eligibility criteria differ by state.
Keeping accurate records of where you performed services, your days worked in each state, and the income attributable to each is critical to support your position during an audit.
How to File State Taxes as a Multi-State Freelancer
- Determine which states you worked in physically or had income sourced from.
- Research the filing thresholds for each state—some require filing at just $1 of income.
- Use allocation methods to divide your income by state (based on time, revenue, or services performed).
- Claim credits in your home state for taxes paid to others, if eligible.
- File each return separately—there is no “unified” state filing system.
Many popular tax software options now offer multi-state modules, but they may not handle complex scenarios well. For high income or multi-year issues, professional advice is often worth the cost.
What About States Without Income Tax?
If you live in or work in states like Florida, Texas, or Nevada, you may not owe state income tax—but you could still be on the hook elsewhere. For example, a Florida-based consultant who travels to Massachusetts to meet a client and perform services may still owe Massachusetts tax on that income.
Penalties for Getting It Wrong
States are becoming more aggressive in pursuing remote and gig economy workers for taxes. Failure to file or misallocating income could result in:
- Penalties for late filing or underpayment
- Interest charges
- Loss of credit in your home state
- Potential audits across multiple jurisdictions
Stay Organized and Compliant
If you’re self-employed and working in more than one state, start tracking your work locations and client addresses now. Also, consult your state’s Department of Revenue or check out this IRS resource for self-employed individuals.
Proper preparation will help you avoid surprises come tax season—and possibly reduce your overall state tax bill.
Bottom Line
Multi-state taxation for self-employed individuals in 2025 is more than just a theoretical problem—it’s a compliance risk. Learn your obligations, track your activity, and take proactive steps to avoid costly mistakes.
For freelancers, consultants, and remote workers, the state line is more than just a map boundary—it’s a tax boundary.
Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as legal, tax, or accounting advice. Tax situations are often complex and highly specific to the individual or business. You should contact a qualified tax expert directly to discuss your particular circumstances. Nothing herein is intended to, nor does it, create an attorney-client or advisor-client relationship. For individual guidance, please contact us directly.
