Tackling Remote Work Tax Challenges

This article was originally published in HR Today on February 27, 2024. Read the full article here.

Laura Gieseke, attorney and tax specialist at SMB Law Group, talks about the tax implications associated with remote work and how HR leaders can be transparent about potential obstacles.

Even as companies push for a return to the office, remote and hybrid work arrangements are largely here to stay. Research from Buffer indicates that a staggering 98% of workers now want to work from home at least some of the time. Yet, with pre-pandemic tax regulations now back in full effect in the United States, remote work has presented some compliance challenges for employers. Laura Gieseke, attorney and tax specialist for SMB Law Group, talks to HRO Today about some of the obstacles HR leaders are facing when it comes to remote workers across the globe.  

HRO Today: What are some things employers know about the tax implications of having employees work in different states or countries?  

Gieseke: In the U.S., employers need to make sure they comply with withholding rules for each state in which they have employees, and any labor and employment laws they may be subject to (for example, a few states now have paid leave laws funded at least partially through payroll taxes), and whether the employees’ presence in that state may be creating tax nexus such that the business will also have a tax obligation in that state. Many states passed temporary provisions exempting employers from tax if they had employees in those states solely due to pandemic-related remote work, but many of those provisions have since expired.

In the international context, the potential considerations are similar – employers need to make sure they understand the local law, but there may be treaty benefits depending on the country. Each situation has to be evaluated on a case-by-case basis.

HRO Today: Are there any tax credits or incentives available for companies with remote employees?

Gieseke: There are a few cities with programs to pay workers to move to their location that sometimes include remote workers, but in general, state tax credit programs tend to incentivize companies to establish a physical presence in those states.  

HRO Today: What information should be communicated to remote employees about the tax implications of working in different locations?  

Gieseke: Employers should communicate with employees at the beginning of each tax year about the implications of moving locations or spending time in multiple states throughout the year. Even in states without an income tax, there may be non-tax implications with having employees in states where the employer does not have an office.

Remote employees should also understand that they may have to file more than one tax return. In general, the state in which the employee performs the work will be the state in which the employee pays taxes. However, there are a few states—Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania—that follow what is known as the “convenience of the employer” rule. In those states, employees are taxed in the state in which the employer is located, and the employer must withhold accordingly. This can create unpleasant surprises if the employee works in a state other than that in which their employer is located and both states attempt to tax the same income.

When it comes to how these expectations should be communicated, employers may find it useful to set out written guidelines, whether in an employee handbook or separate policy, for remote work. This may include:  

• what positions are eligible for remote work and under what circumstances remote work may be approved;
• clear, written standards regarding the terms of remote work and the preapproved state(s) in which it may be performed;
• a protocol for employees to request and receive approval to move, if applicable; and  
• a notice that moving states without notice to the employer could lead to termination.  

As a means of ensuring employees understand and remember these expectations, they should be reminded annually either via email or through a conversation with their direct manager or supervisor. This ensures that even if an employee chooses to move, they will be aware of the implications of doing so.

Laura Gieseke is an attorney and tax specialist at SMB Law Group.

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