Remove Work and Tax Compliance Risks

COVID-19 continues to have a significant impact on how business is conducted for employers. One of the biggest changes we have seen is the shift from working in an office setting to having an entire remote workforce. Although there are many benefits to having employees work from home, remote work has created tax compliance risks for employers. The tax rules can be complicated for business owners as the tax rules not only differ between each state but also from the federal government.

This makes understanding the system overwhelming and it is recommended to reach out to your tax professional for assistance in understanding the rules that are in place and how your business may be impacted.

It is important for you to have a system in place that determines where your staff members work, their state of employment requirements, your own state requirements as a business and the tax implications. As an entrepreneur, develop a system that keeps track of where your employees are located and create processes for how to handle their payroll taxes.

Although you may be certain of where your employees reside, please keep in mind you should have a system that continuously tracks your staff. For example, if a staff member chooses to relocate to a different state then your tax position could change. By an employee changing to a new state, you may have new nexus and filing requirements that you wouldn’t have had otherwise. Essentially, if an employer has a presence of employees in a state even if an employee is working remotely, the company could find itself subject to the state’s income tax laws.

Lawmakers have attempted to address the discrepancy issue between states for remote workers, but haven’t passed anything yet. The “Multi-State Worker Tax Fairness Act” has been proposed over the last decade attempting to create uniformity for mobile employees. Unfortunately, the act still didn’t get passed during the pandemic, however, as tax compliance becomes a bigger burden at the state level, it is possible that lawmakers may address the problem again.

Although having remote employees has multiple benefits such as increasing employee satisfaction, reducing real estate costs and increasing productivity, employers are now taking on increased tax compliance costs.

As you decide to have more remote workers in your company, it is recommended to discuss the risks with your accountant to be fully aware and prepared for the potential compliance and filing burdens.