With the sudden outbreak of the Coronavirus pandemic, also known as COVID -19, it has pushed more and more employees to work remotely. As shelter-in-place orders remain for numerous employees across the United States, employers are giving their employees the option of working remote. Although it is nice to have a beachside balcony or pool side view while working from anywhere, it has been a trending topic because of the taxing issues that many employees are now faced with. If you are planning to work remotely for a long-extended period of time, then it would be best for you to research the state and local taxes for the area you are in. It is imperative to be educated if working in another state on how your taxes are paid for the income you are receiving. Most of the states will have a grace period and so therefore you will want to know how long your able to reside in the state you are temporarily in before you have to report taxing requirements.
Before the pandemic, many states maintained a strong position that if businesses have at least one employee working in another state, even for a day, they will be subject to a state’s income tax. This all goes hand in hand with proving the physical presence of an employee. Certain states explained “physical presence”, saying that an employee had to be present in the state for more than seven days to establish a physical presence. Other states contended and stated that 10 days was a more acceptable timeframe. As COVID-19 quarantine orders became more prevalent, Employers are beginning to see some that some employees are spending 15 or more weeks away from their offices. This also leaves a concern of whether it will become permanent or not. Employers are now in the position that they’ll need to file additional 2020 state tax returns because of remote employees regardless of what state the company is located.
State Income Tax withholding is a requirement for the state that the employee provides services and not the state on where the employee resides. With working remotely, you can see how this will cause numerous complications. “For example, an exception to this rule is a reciprocity agreements between an employee’s home state and work state. This agreement allows residents in neighboring states to not have to file and pay income taxes on wages earned in the working state. With the COVID-19 pandemic’s increased need for employees to work remotely, employers may need to register with their employees’ respective states and withhold payroll taxes on wages.” Many of the states have not issued withholding requirements detailing out how long an employee must have worked away from their state to be subject to pay tax to the state. Given the long list of unanticipated events that have taken place during the pandemic, many states are starting to now release assistance in determining factors of this situation. One thing that is clear from state to state is that during COVID-19 they have expressed that as long as the employer is located in one state but the remote worker lives and works in another state, temporarily, they will not impose withholding requirements. If the employee decides that the remote work is no longer temporarily, and they take the remote work position on permanently then they will be required to file a resident return and they may be subject to pay income taxes for that state.
As a recap for employers it is best to know where your employees are working from. It is your responsibility to monitor their times spent working in another state or location outside of the employer’s state that is originally established. Stay educated and keep up to date with changing Laws around COVID-19 regarding states procedures that you may have employees working in. As for the employees it is your due diligence to track time and income earned at your temporary remote location. Make sure to carefully examine your pay statements each pay period and pay attention to the taxes withheld. Bring to your employers’ attention that you are working in a different state. It is best to know a plan of action as far as permanent telework and if you will remain there after the office is able to bring employees back.