Challenges of Payroll Tax Withholding For Remote Employees Employer Services Insights

Taxpayers who are unsure about their status should consult with a tax preparer. A sixth state, Connecticut3, only applies the rule if the taxpayer’s resident state has a similar rule for work performed for a Connecticut employer. In this case, you usually pay unemployment tax to the employee’s state of residence. Take Amnoni Myers, a child-welfare consultant and motivational speaker who left Sacramento for Oklahoma two years ago. She said the big draw was $10,000 in cash for eligible remote workers relocating to Tulsa.

For other taxpayers, just working a full-time job for a company could count towards being a statutory resident of that company’s state. If your remote work crosses state lines, determining how much income tax to pay which state can be challenging. Residence may be established by a statutory test, which is different in each state, but it is usually determined by the amount of time that a person has spent in that state. A state may also use a worker’s domicile to determine their residence for tax purposes. A domicile is a permanent home as indicated by evidence such as where the person keeps their personal belongings and pets, where they attend doctor’s appointments, where they vote, and where their children attend school.

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For instance, a taxpayer is doing business if its sales in California exceed the lesser of $637,252 or 25% of total sales. Further, a taxpayer is also doing business in California if its payroll compensation in the state exceeds the lesser of 25% of total payroll or $63,726. Thus, traveling employees in California very likely create nexus and give the employer a California income tax obligation. POLICY CONSIDERATION AND BEST PRACTICE – To the extent they do not already, policymakers should consider conforming their state’s personal income tax laws to federal provisions most relevant to remote work to ease compliance, facilitate enforcement, and increase predictability. The definition of a “day” includes all workdays, regardless of when they occur (e.g., weekdays, weekends, federal holidays, etc.) to count against the threshold. Thus, the 30-day threshold is analogous to the “full month of workdays.” In COST’s view, a threshold shorter than 30 days would result in compliance difficulties because of the need to carve out some types of days (e.g., weekends) or certain types of activities (e.g., attendance at trade shows).

• As with many things that happened during the pandemic, decisions about remote work often happened swiftly and without much planning.
• Employees in California also can claim benefits faster — just three days after an injury versus seven for Florida, Texas and most others.

Utilize the employee’s Form W-4 to determine the appropriate withholding amount. For a breakdown of payroll taxes, consider utilizing our payroll tax table for employers. Absent any special waiver, a remote employee can create nexus for various taxes, including income taxes, gross receipts taxes, sales taxes, and local business taxes. In many cases the employee’s presence may amount to a nuisance tax, but compliance is still key to avoiding unwanted penalties and interest for failure to abide by a jurisdiction’s tax rules. As a result of the remote work environment, therefore, employers are evaluating their compliance with credits for which they previously qualified and incentives that have employment-related components, as well as credits and incentives for future projects and expansions. Likewise, policymakers may consider how best to address the impact of remote work on credits and incentives, which may vary depending on whether the incentive program is intended to attract investment/capital expenditures, with job creation as an ancillary factor, or the program is focused on job creation.

Filing multiple state returns gets expensive quickly. How can I save money while staying on top of my state taxes?

In some cases, a minimum number of jobs must be maintained for the taxpayer to retain the credit or incentive and, if the level is not met, the jurisdiction may “claw back” the benefit from the taxpayer. In many cases, qualifying jobs are reported using unemployment wage reports that show employment how do taxes work for remote jobs “localized” or based within the state. Thus, if employees moved outside the state where a credit or other incentive was previously earned or granted and that employee’s wages are reported on the other state’s unemployment wage report, then that continued qualification may be at risk.

Caruso delved further into issues involving remote work and taxes in a Q&A with
SHRM Online. This website is using a security service to protect itself from online attacks. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. The employer maintained its principal place of business in Maryland but employed one telecommuting employee in New Jersey. The employee worked from New Jersey writing software code for the company, which was incorporated into a web application provided to TeleBright’s clients.

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If their trips are shorter, they only need to pay state tax to the state where they reside—their home state. Because the federal government levies these taxes, where you live doesn’t matter. Your employer should initiate a tax compliance review when it is made aware of a remote employee’s new location. In addition, I encourage you to follow up with a certified tax professional who is familiar with your new state and local taxation regulations.

It’s a privilege to be able to clock in from virtually anywhere, but where you live and work, even if it’s temporary, matters for tax purposes. If you’ve spent a significant amount of time or earned the bulk of your income while living in another state, it could cause an administrative headache during tax-filing season, at the very least. These taxes can include income, gross receipts, sales, and local business taxes, which can affect not only a company’s tax compliance but also financial statement reporting, registrations, data gathering, and documentation.

The only serious question raised by the case is one of policy—whether, in our increasingly mobile society in which telecommuting employees are commonplace, it is appropriate for the existence of a single employee to trigger an income tax obligation for an out-of-state corporation. Plainly, the state has a legitimate claim to the portion of the income fairly attributable to the corporation’s employees in a state. This legitimate claim, however, must be balanced against the burden of tax compliance for a multistate company with a single telecommuter in one or more states throughout the nation. This could well be an area in which the establishment of a de minimis rule of jurisdiction (analogous to Public Law ) might be appropriate.