June 26, 2013
If you allow employees to telecommute, be sure to consider the potential tax implications. For example, hiring someone in another state might create sufficient nexus to expose your company to that state’s income, sales and use, franchise, withholding, or unemployment taxes. And the employee might be subject to double taxation if both states attempt to tax his or her income, though this can typically be mitigated.
States have become quite adept at identifying these telecommuters and asserting claims to additional tax or unemployment contributions. The rules vary by state and also by type of tax — and become even more complicated for international telecommuters. It is a good idea to review the rules and develop a game plan before you approve a cross-border telecommuting arrangement.
There may also be other considerations, such as the terms of existing employee cost reimbursement arrangements. Contact us with any questions regarding your particular circumstances.