As if dealing with a global pandemic, ever-evolving public health guidance, and related legislation wasn’t enough, as an employer, you must also be mindful of tax implications if you have employees working remotely.
Tax laws vary by state, county, and city. Many states will require you to register and pay business taxes if you operate in their state. Moreover, some states, counties, and cities also require that you withhold and pay state and local employment taxes for employees working in their jurisdictions.
If you have employees working from home in a state where you otherwise do not operate, you will need to make a state-by-state determination for unemployment and income tax withholding and reporting, as well as other business tax and registration implications. Generally speaking, you should expect to withhold taxes in compliance with the state in which your employees are physically present while working, regardless of your location.
To promote compliance, ensure you know where each of your employees is working. From there, you can determine whether any unemployment and/or state or local withholding requirements apply. You will want to notify employees in advance of a change in deductions due to state or local tax obligations.
Determining whether you have state registration or other business tax obligations due to the presence of employees in locations where you don’t otherwise operate is a bit more complicated. Some states (not all!) have taken into consideration the reality of the pandemic and are more flexible in assessing what creates a sufficient nexus with those states.
Consult myHRcounsel today with your HR and employment law needs.