Are you aware of the business tax implications surrounding the 2020 mass shift to remote working? Before making firm decisions about future remote working scenarios or changing physical business locations, examine the impact that state and local tax rules and regulations will have on your HCM team, your workers and your bottom line.

Though State Rules Vary, Compliance is Required

If your organization is one of the many that temporarily displaced employees to work virtually from home rather than be physically present in the office during the pandemic, especially if you now have employees working across state lines from where they use to work, you need to be aware of what this means from a tax perspective. Are you withholding correctly? Are you in compliance with evolving regulations?

Since things like entitlements and disability benefits vary from state to state and tax jurisdiction registration may need to be completed for each state from which workers conduct business, staying compliant as workers shift to remote work and back to the office again can be a bit tricky. Some other areas of impact are state income tax, unemployment tax, paid family leave programs and termination rules.

Understanding How Your Unique Situation Affects Tax Obligation

Here are example scenarios that would require a business to evaluate a state’s position in regard to remote worker taxation:

• Temporarily displaced worker populations
• New employees hired during a time when their worker populations were temporarily displaced
• Permanent shifts to a work-from-home model
• ‘Splits’: Displaced worker populations who have worked partially at home and partially in the office during a time when emergency mandates were lifted

Where do States Stand on Nexus Tax Expectation?

Some states did not have a formal stance pre-COVID and did not issue new rules. Other states firmly stipulate that the temporary work location is not tied to business relationship. Yet another response is states that are doubling down on the ‘convenience of employer’ rule that holds the location of the business as primary, meaning they don’t care where your employees are working, it’s the company’s headquarter state to which revenue should flow. These various state stances are key in navigating the temporary remote worker population quagmire. Some states are leaning heavily on companies to tow the line, others are forgiving and there is at least one state suing its neighbor over where tax should be paid.  With these differing state expectations, it is imperative to obtain a clear understanding of what your company owes to which state for which workers.

Analyzing the Impact of New Business Decisions

Because this is an evolving situation, expert consulting can help employers understand what their responsibility is to both workers and state tax requirements. Companies that are considering making work-from-home a permanent option across the board and intend to close or move physical business locations need to analyze applicable tax considerations before making critical business decisions.

Wise Can Help

Wise has been performing this type of analysis for our managed payroll clients for years. Recent demand from other clients has prompted us to offer remote worker tax consulting and administration as a stand-alone service so any of our clients can take advantage of our expertise in this critical area. For more information, email us at HCMHelp@wiseconsulting.com or call us at 800-654-4550.

*This article should not be considered tax advice or a full explanation of remote worker taxation issues