Five years after the pandemic triggered the surge in remote work, the United States continues to face one of the most complex tax challenges in its modern history: Where should taxes be paid when work no longer has a clear physical location? In 2025, with millions of people working from different states and some even from abroad, state tax legislation has still not fully adapted to this new work reality. This has created a confusing, conflicting, and, for many taxpayers, costly environment.

In the U.S., each state can define its own rules regarding state income taxes. This creates a situation unique in the world:

• Some states have no income tax (such as Florida, Texas, and Nevada)
• Others have high state rates (such as California and New York)
• There is no clear federal framework harmonizing how income generated remotely is taxed.

In 2025, this problem not only persists but has intensified.

The reality in 2025: remote work is here to stay

According to data from the Bureau of Labor Statistics (BLS), approximately 34% of American workers work remotely, either fully or partially. This includes: employees who live in a different state than their employer, people who relocated during the pandemic and never returned, and digital nomads who switch states several times a year.

The result: millions of workers in a tax gray area, uncertain about their state obligations.

Double taxation and interstate conflicts

In 2025, cases of in-state double taxation are still frequent. New York and California continue to apply “employer convenience” policies, which allow for the taxation of income from remote employees working out of state. This means that an individual who lives and works remotely from Colorado for a company in New York could have to pay taxes in both states.

Although the New Hampshire v. Massachusetts case was not heard by the Supreme Court in 2021, it inspired new interstate lawsuits in 2024, which remain unresolved. Some state courts have ruled in favor of taxpayers; others, in favor of the payroll-generating states, creating an inconsistent regulatory landscape.

Legislative progress (or lack thereof)

Despite the growing problem, no binding federal legislation has been passed by 2025.

Failed Attempts: The Mobile Workforce State Income Tax Simplification Act, which sought to harmonize rules to avoid double taxation, has been introduced in multiple sessions of Congress from 2012 to 2024, but has never achieved final approval.

State Progress: Some states have signed bilateral agreements to avoid double taxation (e.g., Utah and Arizona). Others have adopted more flexible regulations, but this is not widespread.

Impacts on Workers, Employers, and States

For workers:

• Legal uncertainty,
• Additional cost of hiring tax advisors,
• Potential penalties for unintentional errors.

For businesses:

• Difficulty managing tax withholding correctly,
• Obligation to register in multiple states,
• Risk of interstate audits.

For the states:

• States with high tax revenues (like New York) fear losing their tax base if they don't tax remote workers.
• States receiving remote residents are demanding their share of the income generated within their borders.

Proposed solutions

• Establish a clear federal standard: A long-term solution would be a federal law defining where remote work income is taxed (in the place of residence or source) and uniform withholding and reporting rules.
• Limit the "employer convenience doctrine": This principle is the main cause of current conflicts and should be limited through legal or judicial means.
• Create compensation mechanisms between states: Inspired by models like the European VAT, states could agree on tax redistributions or share tax bases.

Future outlook

While Congress has not acted decisively, pressure for a solution is growing. Business organizations, accounting firms, and taxpayer advocates are raising the issue on the national agenda. Also, the Supreme Court could take up a landmark case in the coming years to set clear precedents. With the economy becoming increasingly digital and decentralized, ignoring the problem will only make it more costly and unequal.

In conclusion, by 2025, the U.S. tax system still hasn't resolved the dilemmas created by interstate remote work. Without a federal solution or broad interstate agreements, millions of workers will remain caught between conflicting rules, and states will compete for a shifting and volatile tax base. The question is no longer whether to regulate the taxation of remote work, but how to do so fairly, clearly, and efficiently for all stakeholders.