Multistate – Teleworking During Pandemic Creates Tax Quandary for Companies

With no clear end in sight to teleworking during the pandemic, tax advisers are trying to prevent their clients from being surprised by a potential spate of new state and international taxes.

Workers stranded or sheltered in states or countries they don’t normally work from can expose companies to corporate income tax and a number of employment tax obligations. The odds of that are higher as stay-at-home orders drag on and employees work longer in those locations and risk creating a new taxable presence, tax advisers say. 

Companies need to know where their employees are, how long they’ve been there, and which jurisdictions have said they’ll forgive unexpected cross-border tax liabilities during the pandemic. Without that information they risk compliance problems and unexpected tax bills, advisers warn.

Economic Nexus?

Employees teleworking from a different state than they normally work in, and one the company doesn’t already do business in, can create a new economic nexus—meaning the company could owe income tax there.

Employers would also need to withhold state income tax from paychecks.

Tracking a company’s state tax liabilities from remote workers is complicated by the fact that states have different time thresholds at which an individual becomes taxable. 

State tax obligations triggered by teleworking employees could also create a nasty surprise for foreign companies.

Companies are pressing governments to issue guidance on these issues.

Some countries have already began plans to help this growing issue , for example, there have been a series of agreements between Netherlands, Belgium, Luxembourg, Austria, and Germany to overlook the tax implications of cross-border work because of the pandemic.

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Bloomberg Tax
BY Isabel Gottlieb and Siri Bulusu
May 18, 2020