Work from anywhere employees prompt issues of state income tax nexus for businesses with remote team members working outside of the company’s home state. Many organizations shifted into virtual operations in 2020, with the majority of their employees continuing to work remotely from their homes through 2021. As pandemic-related safeguards for your business’s nexus tax footprint are lifting—and while it looks like remote jobs are here to stay—it’s time to reassess what you need to plan for.
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Many states issued pandemic-related safeguards for employers who had employees working from home due to COVID-19; essentially stating that nexus would not be created in the state from where the employee is working solely due to the pandemic. However, some of those rules are now expiring and employers need to start looking at where they might now have nexus for state income tax purposes, as well as withholding requirements on those employee’s wages. For example, Massachusetts’s special rule for remote worker nexus recently expired on September 13, 2021. Accordingly, wages paid to a nonresident employee are no longer sourced based on where the employee worked prior to COVID-19, but rather where the employee’s work is actually performed.
This is especially relevant for smaller to mid-size businesses who may have previously operated in only one state and now have employees working remotely outside the employer’s home state. With various states lifting the COVID safeguards related to remote worker nexus in recent months, it’s now more important than ever for companies to consider their nexus footprint for state income tax and withholding requirements. Employers will need to quantify the degree of activity in remote employees’ states to determine if the business will become subject to those states’ taxing power, and to determine certain tax obligations that are unique to different states.
REDW is ready to help you to assess these tax obligations for your business and assist with additional compliance burdens. Please feel free to reach out to trusted advisors from the REDW State and Local Tax (SALT) team below. We welcome your questions.
