Remote Work Can Cause Tax Issues for Employers
January 31, 2022
COVID continues to upend the traditional working environment where your employees work relatively close to the office or in the same state. With the pandemic rolling into its third year, many offices remain closed and allow workers to telecommute. While this may be good news for the employees, it can be potentially bad news for employers.
From a payroll tax perspective, employers are responsible for withholding and remitting payroll taxes based on the state's rules for where the employee resides or works remotely. Furthermore, due to state income tax nexus issues, employers may now be required to file income tax returns and/or owing taxes in states they never had to previously.
We have heard the stories of employees leaving California for other states with perceived favorable tax rates. Many millennials and GenZ employees have become digital nomads moving every few months to different states while their jobs remain remote. Employers are responsible for keeping track of the locations where their employees live and work.
Employers need to be proactive in addressing this situation. They should frequently check with employees on their location and potentially require remote workers to get permission to move out of state.
Addressing out-of-state tax issues and potential penalties requires experienced tax professionals. Contact the CPAs at Cambaliza and McGee LLP to understand how each state's tax requirements will impact your company.