6 questions from: Hybrid workplace considerations for employers
As employers continue to craft and refine their remote work strategies and policies, there are a number of operational, legal, and tax implications to take into consideration.
Read on for six additional takeaways on taxation, technology, and other hybrid work matters, based on questions asked during our webinar (Questions have been revised for length, clarity, or applicability.)
Q: Should a company review its corporate income tax filing requirements as a result of employing remote workers?
A: Yes. Employing a remote workforce may trigger a host of new tax obligations. Remote employees working in a new jurisdiction will very likely trigger physical presence “nexus” for the employer. As a result of having nexus with the new state(s), the employer should evaluate whether it has a new corporate income tax or business entity tax filing obligation in that state(s).
Q: When an employee works from a jurisdiction that is different from where they reside, is there a set period of time that triggers a tax change?
A: Employing a remote workforce or having employees working from within different jurisdictions can present a variety of complex tax compliance considerations for both the employer and the employee, and there could be a variety of different time frames that impact tax changes depending upon the issue and the jurisdiction. The employer will want to understand the location of its workforce so that it can evaluate whether it may have new compliance obligations due to both where its workers are performing services and for how long (i.e., the location and duration of their work). Withholding tax requirements, for example, vary state by state, and the employer might be subject to new registration and withholding obligations. The employee, on the other hand, will want to understand whether their own presence within a jurisdiction triggers a nonresident filing obligation, whether they might be at risk of being treated as a resident in more than one jurisdiction, and the impact of multiple withholding upon their resident credit in their state of domicile. These can be complex issues.
Q: We are a New York employer, but since the onset of the COVID-19 pandemic, we have had employees who have continued working from their homes in neighboring states. How does New York’s “Convenience of the Employer” rule impact our withholding requirements?
A: The impact of New York’s “Convenience of the Employer” rule is a common source of complexity and questioning among New York-based employers. In brief, the Convenience of the Employer rule is a wage sourcing rule that looks to treat the income of a New York nonresident employee who is assigned to an office location within New York as New York-source regardless of the actual location where the employee performed services, with certain exceptions. In other words, if a New York nonresident works from home rather than from the New York office for their own convenience (as opposed to at their employer’s direction), the Department of Taxation and Finance takes the position that this income is New York-source income, because the employee is otherwise assigned to the New York office but chose to work from home. This is true even with respect to teleworking arrangements throughout the duration of the COVID-19 pandemic. As such, New York will look for withholding tax. On the other hand, the employee’s home state may also require withholding under certain circumstances. These issues merit careful consideration.