Taxing Remote Workers: Convenience, Conflict, And The Courts

“A lot of people are moving around, so there could be more complicated tax implications,” says Scott Taylor, CFA, a financial advisor at Northwestern Mutual. “There are certain states and certain situations where you could be double taxed.” While the 10 categories each require further defining, the key variables in how they differ is the intent of the travel, who the originator is for the employee being mobile, and in turn, the purpose. Those where the company instructs the mobility, its objective is in alignment to business strategy.

You need the right policies and infrastructure in place today to support them to take advantage of the benefits they present. But the global pandemic turned it from request to requirement almost overnight—and companies stepped up. Seventy-nine percent of respondents to a Deloitte survey1 reported that at least 75% of their workforce has been able to work remotely during the COVID-19 pandemic. And 69% said their company’s ability to manage and support a remote workforce was good or excellent. If you reside in one state and work in another state, and your employer’s worksite is in a third state, you may have to file as many as three tax returns.

Employee Challenge

Employers generally do not withhold any taxes from contractors or make payments to government entities on their behalf. Tax rates for contractors vary from country to country, so contractors should consult local guidelines for specific tax rates and savings tips. Workers in New Hampshire and Tennessee may be subject to state taxes on investments and other income, but these states do not charge state taxes on wages.

• As of 2023, these numbers may decrease as many employers issue return to office plans.
• Do we think other states are going to adopt a convenience type rule or a telecommuting rule?
• Then, again, avoiding the potential for double taxation that could occur if you have someone who lives in Colorado that has a physical presence rule, but is telecommuting to New York.
• But the issue around whether or not the tax departments were even authorized to issue these emergency rulings, I think is a really good one.
• Remote workers in these states who do not perform work in other states only have to file federal tax returns.

The tax cost and administration sits with each individual, some of whom may not comply. The city of Lebanon, Ohio, (another Cincinnati suburb) has filed a brief supporting his case, arguing that cities like Cincinnati unfairly taxed individuals during the pandemic. Lebanon says it had to increase services for residents who were working remotely while seeing no increase in its own income tax collections. And Lebanon continued to offer a reduction 0.5 percent reduction credit to its residents who paid another municipal tax—like the 1.8 percent Cincinnati tax. Schaad paid Cincinnati income taxes as if he were still working in the Cincinnati office a few days a week, but he wants his money back. Akin to Zelinsky, he argues that Ohio cannot allow a municipality to tax nonresidents for income earned outside that municipality.

The Stress-Free Way To Payroll and Taxes for Remote Workers

“I have a lot of colleagues who won’t do Ohio taxes because there’s so many weird little rules in all the different municipalities,” Cagan says. A handful of states may even require you to withhold taxes if your employer is based in the state, even if you never physically work in that state. Typically, you’ll pay taxes in the state you live in (unless that state doesn’t have income taxes). But if you work in a different state, then you’ll usually need to file a nonresident tax form in the state where you worked, listing the income and taxes you paid and earned in that state. If you have a telecommuting employee in a different state than your location or employees in multiple states, you must withhold income taxes for the state they live and work in. You’ll pay unemployment taxes and report their income to the states where they live, not your state.

“I was working from my home in New Jersey or my parents’ basement in Florida, I was doing that out of necessity. I couldn’t go in the office, for crying out loud.” Many of the states who put in these temporary rules didn’t really use the convenience tag. They just said, “Look, if you used to work in our state and then the lockdown happened and you’re working remotely somewhere how do taxes work for remote jobs else, we’re going to treat that as a day worked in our state.” That was the Massachusetts rule. Then they extended this, in some other cases, beyond just local telecommuters to people who were working remotely from across the country. Timothy Noonan of Hodgson Russ LLP discusses how some states tax remote employees and the effect of temporary pandemic tax changes.

How Does Working Remotely Affect Taxes?

During the pandemic, Massachusetts allowed for the temporary collection of income taxes from out-of-state residents who worked from home for Massachusetts-based employers. New Hampshire sued, arguing that Massachusetts can’t tax people outside its borders. When your commute to work takes place within the confines of your home, where should you pay income taxes? Standard workers include regular full-time staff of the employer, such as those working in full-time remote tech jobs.

• This means that a resident of Ohio will be exempt from state income tax in PA if they submit Form REV-419 to their Pennsylvanian employer.
• The taxes you pay and the rules for withholding taxes change depending on not just what state you live in, but what county and city.
• While there is no limit on the time you can stay there, your residency state will continue to be wherever you have your domicile (primary residence).

The number of days after which this kicks in varies from country to country. But a good rule of thumb is that typically if your employee is working from somewhere for more than around 4 months in a year, this will trigger local employment and tax regulations. If you have employees who recently moved to a new state and worked remotely, they’ll need to establish a new domicile, or permanent residence, to avoid being taxed in their current and former states.