![]() ![]() Employers: Why multistate tax issues matterįrom an employer’s perspective, allowing employees to work remotely may create obligations to withhold and remit income and payroll taxes in several states. In other words, State A can impose its income tax on Dan by demonstrating that he’s working from State B for personal reasons rather than because it’s a job requirement. Under these laws, a state can tax an out-of-state employee’s income from a source within the state, if the employee works remotely for his or her own convenience, not the employer’s. However, this may not work if State A is one of the handful of states that have enacted “convenience of the employer” laws. Going back to the example, if Dan sells his home in State A and takes other steps to cut ties with State A and establish roots in State B, he may avoid taxation by State A. One way for employees to avoid double taxation is to ensure that they’re both residents and domiciliaries of the state from which they’re working remotely. But his tax bill may still increase if, for example, State B’s income tax rate is significantly higher than State A’s rate. He may avoid double taxation if one or both states provide credits for tax paid to other states. State A considers Dan to be domiciled there, but State B views him as a resident, so he’s subject to taxes in both states on the same income. His employer allows employees to work remotely, so Dan now spends more than 200 days per year living and working in State B. For example, Dan has a home in State A, where his job is located, and a vacation home in State B. It’s possible to be domiciled in one state and a resident of another. Domicile is a state of mind, and is often based on a person’s intent to make a location his or her “true, fixed permanent home.” Residency is based on physical presence in a state for a certain amount of time (typically, 183 days per year). Here’s the problem: States generally have the power to tax the income of people who are domiciled there as well as people who reside there. For example, you may need to file income tax returns in both states, which may result in increased - or even double - taxation. If you live in one state and work remotely for an employer in another state, familiarize yourself with the tax laws in both states and determine how they may affect you. For some businesses, however, remote work has become a permanent arrangement, allowing employees to live and work further away from the brick-and-mortar office. Perhaps they wanted to take advantage of a vacation home during lockdown or simply wanted to get out of the city for a while. It wasn’t unusual, during the early days of the pandemic, for employees to work remotely from another state. But it may also lead to some tax surprises, especially if workers cross state lines. A remote workforce offers many benefits, for employer and employees alike. As a result, it’s here to stay for many businesses. The COVID-19 pandemic forced many employees to participate in a global experiment on the pros and cons of remote work.
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