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State Tax Implications of Working From Home

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Over half of all employees want to keep working from home at least part of the time, which means employers will be facing tax consequences. Requirements are different for remote and in-office staff members, and the nexus laws in a state also affects what employers pay.

Jun 18th 2021
Attorney Cloud Peak Law
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The country's workforce has changed significantly because of the COVID-19 outbreak. Pew Research mentions that, in December 2020, as much as 54 percent of workers wanted to keep working remotely even after the epidemic's end. Working from home brings with it a lot of concern from an accounting perspective.

Tax requirements for remote employees differ significantly from those for in-office workers, and with good reason. Working from home usually means shifting the burden of infrastructure to the person's home state. Unfortunately, jurisdictions such as New York or California may find themselves lacking taxes to do infrastructural maintenance based on how many people have left the state because they can work remotely. What tax implications are there for this increased remote workforce?

Pre-COVID Employee Taxation

For many years, employers monitored their employees' locations to pay taxes to the proper jurisdiction. In smaller states, where employees would frequently cross boundaries for work, taxes may have to be split between several administrative districts. COVID gave the entire system a shake-up, resulting in the old methods of taxation no longer being relevant. With so many remote workers, states have had to rethink their taxation paradigm.

Luckily, many have seen the sense of exemptions to employers. When the outbreak first happened, businesses shuttered, but the pressures on performance and profit were too much. In short order, they shifted into a sophisticated work-from-home paradigm. Employers quickly addressed concerns about taxation to state authorities. In those troubling times, the states waived some of the tax obligations that businesses would have for employees working within the locale.

Now, with remote work becoming more commonplace and likely to stick around, companies have more questions, such as how long the moratorium on collecting these taxes will last.

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