For employers dealing almost a year with employee workplace adjustments during COVID-19, their tax accountants may have more questions than answers when doing this season’s taxes.
Liability concerns arising from the need to prevent office transmission of COVID-19 led to a widespread decision to relocate employees to their homes to work, enabled by the fact that internet access is now commonplace in residences. However, since it is common, especially in large American cities, to draw employees who live in different states than the office’s location, the definition of where an employee’s “workplace” actually is has shifted dramatically.
In reaction, many state and local laws governing how employment taxes are collected have been enacted to address these “actual workplace” changes. Tax compliance obligations to state and local authorities have necessarily been complicated by these changes, and employers must take stock and understand these thoroughly.
One important consideration for employers is determining whether bordering states have reciprocal agreements. These would ensure that employees who live in their respective states are not subject to tax in other states in which they do their work. The agreements typically specify that employers should withhold income taxes on a nonresident employee’s wages only for the employee's resident state and that such employees' wages are not subject to income tax rules of the state where wages were earned (i.e., where the service was performed).
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