Though businesses have always hired employees to work remotely, the practice became more common and much easier with the introduction of internet connectivity and ubiquitous for many throughout the global pandemic. Declining COVID-19 cases have combined with multi-layer protective interventions to return many American workplaces to normal operations, but that doesn’t mean that everybody is keen to return to the office … or that employers are eager to have employees back.
Remote work has proven both workable enough and advantageous enough that many organizations are either offering it or open to allowing it. If your company is entertaining the idea of hiring new employees who live in a different city, state, or country, or of permitting current employees to relocate and work from one of these locations, you’re likely to realize multiple benefits. There are also certain adjustments you will need to make in order to remain in full compliance with the tax requirements of each of those locales.
Your first step should be a comprehensive review of each location’s payroll and income tax requirements. Different locations have different tax rates, and as an employer, your withholding responsibilities will be based on where the employee resides rather than on your location. You will also need to file unemployment taxes and determine whether you are expected to submit additional taxes or fees despite the fact that your business is based in another state. You will need to register your business in each of those locations so that taxes can properly be submitted, and that process can take time and – like so many administrative tasks – are vulnerable to errors.
In addition to state information, it is important to double-check to see whether your employees are living in locales that assess additional employment taxes. Philadelphia workers are required to pay an additional wage tax, and that city is not alone – in fact, as more employees began moving to remote locations during the pandemic, many municipalities introduced new tax laws to recoup revenue lost when employees stopped commuting.
To make sure that you do not face penalties in the future, make sure you have clear communications with each of your employees and new hires about the locations from which they plan to work, as well as the need to notify you should they make any changes. It is easy for them to assume that the flexibility that technology provides means that where they work makes no appreciable difference. This assumption can end up hurting both of you at tax time.
If your employee population includes remote workers, or you plan on offering remote work as an option in the future, speaking to a tax and accounting professional can help you make sure that you’ve covered all your bases.
About Martinez & Shanken, PLLC
Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services. Partners Deborah Martinez and Earl Shanken work to ensure your business accounting is done with integrity and to your satisfaction.
