President Biden recently announced that the national emergency relating to the COVID-19 pandemic will end on May 11, 2023. This move may result in unexpected tax issues for employers with remote workers in states where they do not have a traditional business presence. Most employers understand that these tax issues can include withholding state income and other payroll taxes from the remote workers’ pay. However, these obligations can go well beyond payroll taxes to include corporate income, sales and use, and personal property tax liabilities.
During the pandemic, a number of states put into place waivers of tax jurisdiction claims that are solely based on residents of those states working for an out-of-state employer from their homes. In some situations, these waivers were tied to the national emergency declaration. When that emergency ends, those states may assert tax authority over companies with continuing remote working arrangements.
These tax liability issues are complex and differ significantly from state to state. In some cases, employees who perform limited amounts of remote work will remain exempt from state tax requirements. Companies with remote workforces should consult with legal counsel and their tax professionals to determine potential tax burdens generated by having employees work from another state. Some companies have adopted policies that prohibit managers from approving a remote work arrangement unless that arrangement has been vetted for tax and other business impacts.