Understanding the Tax Implications of Remote Employees

In the ever-evolving landscape of work, businesses are increasingly embracing the flexibility and efficiency of employing virtual teams. However, this shift to remote workforces brings its own set of challenges. The tax implications of remote workers can be complex for business owners. To ensure your company’s compliance and financial stability, it’s critical to understand how your remote workers impact your tax obligations. In this article, we’ll shed some light on key tax considerations for businesses with remote employees.

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Tax Nexus

When you hire remote workers, it can create a legal connection to the states in which they’re located, known as a “tax nexus.” This occurs when a company conducts sufficient business activity within a state—by employing workers, selling goods or services there, or both. In the past, the nexus created by employment was clear: employing workers in a state meant having a physical location there with employees working on site. With the rise of remote work, however, the question has become more nuanced.

Compliance Risks

The presence of a tax nexus creates obligations for the business, which can vary considerably from one state to another. This can create a complex network of legal obligations, which presents significant compliance challenges. Depending on their location, employing even a single remote worker in another state could trigger new requirements. This can result in companies being subject to not only new tax and withholding liabilities but also additional registration, wage and hour, and workers’ compensation requirements. Careful navigation of these legal intricacies is critical.

Double Taxation Risk for Employees

A tax nexus can create obligations for not only payroll but also sales and income taxes. Depending on where your business and its employees are located, this could create a situation in which your employees are forced to pay income tax in both their home state and that of your business. In some states, for example, workers must pay income taxes to their employer’s state if they work elsewhere for the convenience of the employer rather than due to necessity. These types of laws are facing legal challenges, but their current impact on out-of-state employees is substantial. To recruit and retain valuable team members, it’s important to understand how your remote hiring practices affect the real value of their earnings.

Tips for Employers

Given the complexity of employing workers in multiple states and the significant costs that can arise if your business fails to comply with applicable laws, it’s important to plan your remote hiring practices carefully. Follow these tips for creating remote hiring policies and procedures:

  • Understand the full cost of employing workers in each applicable state, including:
    • Additional tax liabilities for your business
    • Potential for double taxation of remote employees
    • Other additional costs, such as supplemental workers’ compensation insurance or wage and hour requirements
    • Administrative expenses that must be incurred to comply with new requirements
    • Possible noncompliance penalties
  • Use this information to create a strategy for remote hiring. This may include, for example, exploring talent pools in states that have the most favorable tax laws around remote work.

 

Accurate assessment of the tax consequences of your remote hiring decisions requires careful evaluation of state tax laws. Additionally, properly filing tax documents in multiple states is a highly complex task. As a result, expert guidance is essential to ensure your business remains in compliance and avoids unnecessary and unforeseen taxation. 

How Can We Help?

Our established team of trusted tax professionals has decades of experience advising businesses that operate in multiple states. We can help ensure you stay compliant with all applicable tax laws while helping you understand how to optimize the tax efficiency of your hiring practices.  If you would like to learn more about this service or if we can assist you in any other capacity, please call us at +1 (212) 382-3939 or contact us here to set up a time.

 

Rosenberg Chesnov Advisors, LLC, a Stable Rock Company, has decades of experience working with startups and enterprises across industries. We offer cost-effective solutions with deep expertise in accounting and tax as well as outsourced CFO and back-office services to fuel our clients’ success.

 

Learn more about us, or explore our blog for more tips and insights.

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Jeff Coyle, CPA

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy.
Filing quarterly and annual taxes.
Audit support.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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