These taxes can include income, gross receipts, sales, and local business taxes, which can affect not only a company's tax compliance but also financial statement reporting, registrations, data gathering, and documentation. Employees now might live in one state but work for a company located in another and have to contend with taxes in both states: The convenience-of-the-employer or other sourcing rules may make the worker's compensation taxable in the employer's state, and that same compensation may also be taxed by the worker's resident state (although an offsetting tax credit may be available in some states).Ĭompanies also face tax consequences when they employ workers who work remotely from different states.
"But with remote working, that's all changed," Klein said. Workers tended to live in the same state where their employers were located, meaning they only had to deal with one set of state taxes. "In the old days, it wasn't so bad," he said. Klein warns that convoluted and varied state taxation laws mean the threat of double taxation is an all-too-real problem, given the increase in remote working. "That's great, but it often comes with an opportunity cost." "Workers are spreading their wings and offering their services in cities all over," he said. However, Klein stresses that the employee perks of remote working may not always be in workers' financial interest. Silicon Valley is extremely concentrated. "If I'm in San Francisco and need to meet several individuals in proximity, then it makes sense to use an office. Today, however, remote working has changed how we work, in ways that state and local taxing authorities across the United States have been slow to adapt to.
I think a continued exodus of employees from big cities is inevitable."īefore the pandemic, three mega economies, New York City, Los Angeles, and Chicago, contributed $3.46 trillion to the national economy. "This way of working will only gain ground. "Even in high-level corporate professions, lawyers and bankers are now just as effective working remotely as they were in an office. "The amount of net worth that has moved out of the big cities has been staggering COVID-19 has opened people's eyes," Klein said.
No longer tethered to their employer's business location, many workers have transferred their residency to another state. Mark Klein, partner and chairman of the New York law firm Hodgson Russ, predicts continuing conundrums as companies in bigger, often more-expensive cities lose talent to other states. Since states' pandemic guidance on temporary telecommuting has long expired, CPAs' advice will be highly sought after as companies remodel their tax strategies accordingly. "Legislators will continue to look at these issues. Every state works different," Kueck said. In the motion, New Hampshire sought an injunction against Massachusetts's new regulation requiring workers who previously worked in Massachusetts to pay its income tax despite working in other states due to the COVID-19 pandemic. Megan Kueck, the AICPA's lead manager–State Regulation and Legislation, said the Supreme Court's June 2021 denial of the state of New Hampshire's motion for leave to file a bill of complaint against Massachusetts illustrated an ongoing lack of coordination among states regarding their right to tax remote workers ( New Hampshire v. Yet the shift from the office building to the home office carries complicated tax consequences for firms and businesses that have yet to fully adapt to this new model of working. Many workers have embraced and adapted to this new setup. In a post-pandemic world, 16% of companies have gone fully remote.
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