Are Remote Workers A Tax Liability? It Depends.

Are your employees still working remotely? When the pandemic first hit, many businesses were forced to transition to a remote working model for safety reasons.

In the time since, some companies have returned to the office, while others have adopted a hybrid model or continued with remote working due to ongoing concerns regarding COVID-19 variants.

Regardless of your specific situation, one thing that every company should be paying close attention to is how these workers can impact tax obligations. In this article, we’ll share updates to the situation and how they might impact your business.

The Remote Working Tax Situation So Far
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An Update of Taxation Of Remote Workers

When the U.S. began to feel the full brunt of the COVID-19 pandemic, businesses from every industry transitioned their employees to remote working. Nearly a year later, many of those employees are still working remotely.

In July, we shared a post discussing the tax implications of remote workers and whether they created nexus. The situation has continued to evolve since then, so we’d like to share an update on the tax implications of remote workers.

An Overview Of The Situation

When the pandemic first hit, many states were forced to consider whether remote workers would create “nexus,” which is the amount of contact from a company needed in order to be obligated to collect tax in a state. For many employers, this could create additional tax obligations in states where they previously did not have nexus. Additionally, questions arose regarding the taxation of employee’s income and which state would collect the tax.

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Remote Work Force And State Tax Implications

The Covid-19 pandemic has had an impact on our workforce.  Companies were forced to quickly respond to a work-from-home model for their employees.  Many employees began working from states other than the states in which their assigned offices were located.  As a result, questions are being raised such as whether the company will have nexus for corporate income tax and sales and use tax purposes in the states where it has remote employees, should the company begin withholding on wages earned by the employee based on the location of the remote employee and whether the employee should be filing a nonresident tax return in the state in which she is working remotely.

Nexus for Companies – Corporate Income Taxes and Sales and Use Taxes

Generally, states will assert that an employee working from home or remote location within the state will trigger nexus for the company.  Nexus is used in tax law to describe a situation in which a business has a tax presence in a particular state, therefore, subjects the company to the state tax laws, such as corporate income or franchises taxes, or sales and use taxes tax.

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