What Remote Workers Need To Know For Tax Season

Statutory tax credits and negotiated incentives are often tied to the creation or retention of jobs within a designated geographic area (state, locality, enterprise zone, etc.). The ongoing shift to remote work calls into question the satisfaction of these existing jobs requirements, the ability to renegotiate these benefits, as well as the approach to pursuing similar credits and incentives in the future. Where remote work exposes the company to liability, such companies may need to consider creating “blacklist states” — states where employees are prohibited from working remotely. However, all of this is predicated on the idea that the employer can both track the remote work location of all its employees and successfully limit their mobility to certain states. It means that if you usually worked in New York but are working remotely from your home in New Jersey during the pandemic, you’ll still owe New York state income taxes, said Alan Sobel, president of the New Jersey Society of Certified Public Accountants. More than a dozen states, usually those that share a border and a hefty number of interstate commuters, try to simplify things by striking tax agreements with their neighbors.

During the COVID-19 pandemic and Ohio’s stay-at-home order, Ohio did for its cities what Massachusetts did for itself with neighboring states. Ohio allowed employers to withhold municipal income tax irrespective of where their employees performed their work. The idea was to allow local governments to maintain their municipal budgets.

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5For a further discussion of the erosion of nexus protection and the burden on small businesses, see Stanton, “Erosion of Nexus Protection and the Burden on Small Businesses,” 52 The Tax Adviser 182 (March 2021). The New Jersey Division of Taxation (Division) took the position that TeleBright was liable for the CBT because it was “doing business” in New Jersey by permitting the employee to work from her home within the state. In response, TeleBright asserted that it was not “doing business” in the state and further challenged the Division’s position based on both Due Process and Commerce Clause grounds under the U.S. Fifteen states have said they won’t tax people who moved in temporarily during the pandemic, the C.P.A. institute says. “As a taxpayer, you can’t just assume the state isn’t going to go after you,” she said.

You could be responsible for additional employer withholding and sales tax responsibilities if you have workers in another state who don’t work in a company office. However, this differs based on the states where your employees live and where your organization is located. This test requires that you withhold and pay taxes to the state where your organization is located, even if your employees live out of state, if they do so out of convenience. Unless you specifically require your out-of-state workers to be remote in their state, you may have to withhold taxes for your state. For instance, if you work remotely in the same state as your organization (whether that’s Arkansas or California), expect no complications about who receives your state income tax. However, extenuating circumstances often require remote workers to file a nonresident state tax return (for example, if they live in one state and work remotely in another).

How taxation works for different types of remote workers

Working from home — or any location away from the office — can come with some benefits. Chart a long-term remote work plan that most effectively helps your workers thrive. Every company’s strategy is custom-built based on their industry, global footprint, how do taxes work for remote jobs talent needs, and company culture. Tax leaders must address questions around skills development and career progression in a mixed workplace environment. Your teams are likely to have questions about going back into the office post-pandemic.

“The amount of net worth that has moved out of the big cities has been staggering; COVID-19 has opened people’s eyes,” Klein said. “Even in high-level corporate professions, lawyers and bankers are now just as effective working remotely as they were in an office. You can offer your employees a remote work stipend through WorkPerks by PeopleKeep. Our employee stipend administration platform makes it easy to set up and manage the personalized benefits your employees want. This includes monthly allowances for things like health, wellness, professional development, and more.