One surprising implication of remote employees that you may not have thought about is the nexus issues that arise from it. Nexus is the tax presence of businesses that include payroll, property, and sales. Sales tax is typically the type of tax discussed regarding nexus, but payroll taxes are a large factor.
This past year, many companies moved their offices from their office buildings to their living room. While it has improved work-life balance, the tax implications of remote work could be a surprise to most employers come tax time. Depending on the state, companies could be liable for paying payroll tax to each state that their employees lived in (thus, worked from) in 2020.
Furthermore, if an employee chooses to work remotely from a state that they do not typically reside in, they could also be liable to file a non-resident income tax return of that state. This, of course, depends on the specific state guidelines and rules. Some neighboring states even have agreements in place with one another to allow remote workers to only pay taxes to their home state.
The Remote and Mobile Worker Relief Act of 2020 (which can be read here: https://www.congress.gov/bill/116th-congress/senate-bill/3995), provides some relief to remote workers. There are also varying rules state-to-state regarding the basis of nexus. Some states have an income limit before they will start taxing you on that income from remote work, some count a certain amount of days that you work from that state, while even some states will credit you for a portion of tax you pay into the state that your employer is located limited to the amount of tax you owe into your home state.
Before deciding that you have a tax liability in another state, please either see the rules regarding this for your home state and employer’s state or call the state offices.
Read more on nexus and how it affects small businesses here: https://www.bookwormaccountant.com/the-hidden-effects-nexus-can-have-on-your-business/
Source: https://www.cnbc.com/2020/05/30/here-are-tax-issues-to-know-if-you-will-work-remotely-permanently.html