Tips on tallying up state tax, withholding consequences of remote work

One of the most sweeping economic changes arising as a result of the COVID-19 pandemic is the shift from in-person to remote working. Although many employees have returned to working on location again, factors indicate the labor market has evolved to accommodate remote workers more permanently. With the shift comes state tax and other employment issues employers must now confront. This article focuses on some of the state tax issues.

COVID-19's ripple effect

Before COVID-19, certain state tax credits or reciprocity provisions were already in place to account for individuals working in one state while residing in a neighboring state, while multistate businesses “apportion” their income among the states in which they do business based on methods that vary from state to state. Additionally, states through formal or informal policies allowed for varying amounts of de minimis (or very minor amounts of) work within their borders from nonresident workers without triggering tax consequences.

The shift to remote work, however, opens the possibility for employees to work beyond those geographic boundaries for longer periods, thereby creating potential tax consequences in states with which employers previously had little to no contact.

What employers must do