Before many of us turned to remote work due to the COVID-19 pandemic, several workers had already gravitated to telecommuting or remote work. A 2017 FlexJobs report identified a major upward trend in remote work. FlexJobs reports that from 2005 to 2017, remote work grew by 159%. More recent information on remote work comes from the Microsoft Corporation. On April 9, 2020, the company reported a daily record of 2.7 billion meeting minutes in Microsoft Teams in one day, which is a 200% increase from 900 million on March 16, 2020.
Now that we are working from home more than ever before, companies may encounter new state tax filing responsibilities. How will a company know if and when to make adjustments for employees working remotely? In this episode of “Unique Perspectives – The DGC Podcast,” Senior Advisor Scott Thomas, JD, LLM takes you through how a company should address state tax filing responsibilities for remote workers during the COVID-19 pandemic.
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Nexus to Additional States
As companies evaluate the costs of remote work, they often miss the cost of additional tax filing responsibilities and tax liabilities in the home states of their remote workers. The recent U.S. Supreme Court Wayfair decision expanded the jurisdiction of states (nexus) to include companies without a physical presence (employees or property). Under the new standard, companies with a mere economic presence in a state may now have filing responsibilities and tax liabilities. However, despite the Wayfair expansion of the nexus standards, physical presence remains sufficient for nexus to most states. The states generally conclude that the presence of remote workers and the property they possess within these states constitutes sufficient presence for nexus prompting tax filing responsibilities and tax liabilities. Although the states have been consistent in their treatment of remote workers as creating nexus, the increased number of workers and additional state presence may require an evaluation of the costs associated with the changes to remote work.
A Few Forgiving States
Some states, concerned that they may overreach during difficult times, passed legislation or wrote regulations limiting the nexus of companies that have physical presence solely due to the temporary presence of remote workers that ordinarily work out-of-state at their assigned offices. These forgiving states generally look to the mandates of their governor regarding stay-at-home orders and other travel restrictions to determine whether the nexus exception applies to each remote worker.
Personal Income Tax Withholding
In addition to its own filing responsibilities, companies should review the state individual income tax withholding requirements for its remote workers. Remote workers that have recently changed work locations will likely require changes to their state individual income tax withholding.
With these changes, companies should review their tax withholding and filing responsibilities and tax liabilities in states where their only physical presence consists of remote workers and any company-owned property those workers may possess. If you have questions, please reach out to a member of your DGC client service team or Scott Thomas, JD, LLM at 781-937-5172 / firstname.lastname@example.org. You can also visit DGC's coronavirus web page at dgccpa.com/coronavirus which is frequently updated with new resources to help you deal with the financial impact of the coronavirus on you and your business.
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