Q&A with Charlie Plumb
Multistate telecommuting offers pitfalls in taxes, unemployment
Q: Yahoo made headlines this year when company officials retracted its popular work-from-home policy. Yet despite this move from a company whose business revolves around mobile technology, many employers still allow employees to telecommute. Why?
A: Employers often permit telecommuting — whether in-state or out-of-state — as a way to retain and recruit valuable staff members, reduce employee travel time and overhead expenses, allow employees to work in an environment that heightens their productivity, and boost overall morale.
Q: Are there any liabilities associated with allowing employees to work from another state?
A: Yes. Two lesser-known areas of liability involve the payment of corporate business taxes and unemployment insurance.
Q: Aside from withholding and remitting income taxes to the proper state taxing authority on behalf of its out-of-state workers, what else should employers be concerned about?
A: Many employers may be unaware the mere presence (or residence) of an out-of-state worker may create an additional corporate business tax liability for them in the majority of U.S. states. In 2010, a New Jersey court held that an out-of-state employer owed New Jersey corporate business taxes because of the company's link with the state, despite the fact the company had no business operations or other connections with the state. In this case, the link was determined to be the employee who worked from her home in New Jersey. Only six states have clearly stated that the presence of telecommuting employees wouldn't give rise to additional tax liability. However, with telecommuting on the rise and many states challenged to find new revenue sources, don't be surprised if more states adopt this same “linkage” policy.
Q: What do employers need to know about unemployment insurance for out-of-state telecommuters?
A: As with income taxes, unemployment claims are generally filed in the state in which the employee physically performed the work, even if it was performed for the benefit of a company in another state. Therefore, employers must be diligent in remitting unemployment insurance payments for telecommuting workers to the state in which the employee is doing the work.
PAULA BURKES, BUSINESS WRITER