Quick Answer
Physical presence requires you to be physically located in a state to owe taxes, while economic nexus creates tax obligations based on income thresholds (typically $100,000-$500,000 annually) regardless of location. As of 2026, 31 states use economic nexus for income tax, meaning remote freelancers often owe taxes in multiple states.
Best Answer
Priya Sharma, Small Business Tax Analyst
Best for established freelancers earning over $100K annually with clients in multiple states
What are physical presence vs economic nexus standards?
Physical presence nexus is the traditional standard requiring you to have a physical location, office, or spend significant time in a state before owing income taxes there. Economic nexus, popularized after the 2018 Supreme Court Wayfair decision for sales tax, has been adopted by many states for income tax, creating tax obligations based purely on income thresholds.
How economic nexus affects freelancers
Under economic nexus, you may owe state income tax in any state where you exceed their threshold, regardless of where you live or work. Common thresholds include:
Example: $150,000 freelance consultant working remotely
Sarah, a marketing consultant living in Florida (no state income tax), has clients across multiple states:
Tax obligations:
State-by-state nexus comparison
Key factors that determine your nexus
What you should do
1. Track client locations and payments by state quarterly
2. Monitor your income against each state's nexus threshold
3. Register for tax obligations before exceeding thresholds
4. Consider estimated payments in nexus states to avoid penalties
5. Use our quarterly estimator to calculate multi-state obligations
Key takeaway: Economic nexus means earning $100,000+ from clients in nexus states can trigger tax obligations regardless of where you live or work, potentially creating filing requirements in multiple states.
*Sources: [Multistate Tax Commission Model Statute](https://www.mtc.gov/), state tax code sections*
Key Takeaway: Economic nexus creates tax obligations based on income thresholds ($100K-$500K) regardless of physical location, meaning remote freelancers often owe taxes in multiple states where their clients are located.
State nexus standards and thresholds for freelancers
| State | Nexus Standard | Income Threshold | Top Tax Rate |
|---|---|---|---|
| California | Economic nexus | $0 (all CA income) | 13.3% |
| New York | Economic nexus | $0 (all NY income) | 10.9% |
| Massachusetts | Economic nexus | $200,000 | 5% |
| Illinois | Physical presence | 183+ days | 4.95% |
| Florida | Physical presence | N/A | 0% |
| Texas | Physical presence | N/A | 0% |
More Perspectives
Priya Sharma, Small Business Tax Analyst
Best for employees who work remotely and have side freelance income
How nexus works when you have W-2 plus freelance income
As a remote employee with side freelance work, you face nexus rules for both your employment state and any states where you have freelance clients. Your W-2 income typically creates nexus in your employer's state (where the work is performed remotely), while freelance income may trigger economic nexus in client states.
Example: Remote employee in Colorado with freelance work
Mike works remotely for a California company (W-2: $80,000) while living in Colorado, plus freelance writing for clients:
Tax obligations:
Credits available: Colorado provides credits for taxes paid to California and New York, preventing double taxation on the same income.
Key takeaway: Remote W-2 employees with freelance income may owe taxes in their residence state, employment state, and any economic nexus states, but credits typically prevent double taxation.
Key Takeaway: Remote W-2 employees with freelance income may owe taxes in multiple states but can claim credits to prevent double taxation on the same income.
Priya Sharma, Small Business Tax Analyst
Best for consultants who travel to client locations and work on-site
How travel affects nexus for consultants
Consultants who travel to client locations may trigger both physical presence and economic nexus. Physical presence can be established through:
Managing nexus as a traveling consultant
Track your time carefully: Maintain records of days worked in each state, including travel days and partial days. Some states count any day you perform work as a full day for nexus purposes.
Example: A consultant spending 45 days in Illinois (under 183-day threshold) but earning $120,000 from Illinois clients would owe Illinois tax under economic nexus rules, not physical presence rules.
Consider state-specific rules: New York taxes non-residents on day one of work in the state. California has a "doing business" standard that can apply to consultants with ongoing client relationships.
Key takeaway: Traveling consultants must track both time spent and income earned by state, as they may trigger nexus through either physical presence or economic thresholds.
Key Takeaway: Traveling consultants must track both days worked and income earned by state, as nexus can be triggered through either physical presence (183+ days typically) or economic thresholds.
Sources
- Multistate Tax Commission — Model nexus standards and interstate tax coordination
- IRS Publication 505 — Tax Withholding and Estimated Tax
Reviewed by Priya Sharma, Small Business Tax Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.