Expert Q&A: Resolving Tax-Filing Issues for Remote Workers

However, in order to properly withhold and even know whether to withhold, an employer must first understand and be able to track where its employees are working. Additionally, employers that did not previously maintain a remote workforce and for whom it was generally unnecessary to track employee work locations may find unique hurdles for compliance. Those companies that operate with a global team may simply choose to hire their employees as contractors vs. full-time. In this case, that would put the onus of managing taxes and local laws on the employee.

Reduce complexity and minimize disruption with Experian Employer Services. Catch up on CNBC Select’s in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date. The important thing is to keep itemized receipts or detailed records of everything. “You want to make sure that if ever you get audited… you have a reasonable defense for yourself,” she says.

Company

It often occurs when a company has a physical presence or an economic relationship in a state. Employers may be required to report taxable employee benefits, such as bonuses and stipends, for remote workers and withhold income taxes for the respective states. Several states, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, do not require income tax withholding. States with no income tax, such as Texas and Washington, are popular for remote workers, but they may be responsible for other taxes or mandatory employee benefits. Remote employees are employees who work outside of the office setting and are on a company’s payroll, while independent contractors are self-employed and responsible for managing their own taxes. Employers are responsible for withholding federal income taxes, FICA taxes (Social Security and Medicare), and federal unemployment taxes (FUTA) for remote employees.

Catherine Stanton, past chair of the AICPA’s state and local tax committee, says she’s fielded an increasing number of questions about out-of-state remote situations from clients, both employees and employers. As with many things that happened during the pandemic, decisions about remote work often happened swiftly and without much planning. Nearly half https://remotemode.net/ didn’t know each state has different laws related to remote work. Typically, the rule is that employees pay taxes based on the state where they reside. However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states.

Social Security/Medicare Taxes

One way to ensure that you remain compliant in these states while benefiting your entire remote team is to offer a remote work employee stipend. This enables you to give your employees a taxable allowance for their remote work expenses, such as internet service, https://remotemode.net/blog/how-remote-work-taxes-are-paid/ cell phone bills, and home office setup costs. You’ll also want to draft a company policy for remote work expense reimbursement in accordance with your local laws. Recently, Krishna told Bloomberg that employees’ careers could suffer if they work from home.

• These instances sometimes arise when people from New Jersey commute to New York City or Washingtonians commute to Portland, Oregon.
• Remote work does not necessarily mean working from home or in your primary domicile.
• Like the temporary remote workers mentioned before, digital nomads often have to file non-resident tax returns depending on their stay in a given state.