Hiring Employees in Other States? Beware of Taxes on Remote Workers
The revolution in remote work creates exciting opportunities for entrepreneurs to run agile businesses and recruit the best talent available. But hiring remote workers may create obligations as well, especially in terms of taxes. Understanding how a remote workforce affects your tax burden is essential. That’s what we will explore in this blog post.
When Do You Pay Taxes on Remote Workers?
You may need to pay taxes (income, franchise, gross receipts, sales and use taxes) in the state where your business operates or is incorporated. You should also explore the potential for tax liabilities in any state where you have remote workers located – even just one worker.
At the very least, you will need to register for a payroll tax ID (before the first payroll) and start remitting the state’s payroll tax. Plan to do this for every single remote worker you hire.
You may also need to pay income and sales taxes in the states where you have remote workers as well. It depends on whether you have nexus or “connection to” a state. All states define it differently, but you typically have nexus anywhere a full-time employee works even if you don’t conduct any other business in that state.
How High are Taxes on Remote Workers?
Having nexus in a state may require you to pay income taxes there, but the taxable amount depends on what’s known as apportionment rules. Every state has its own rules. Some are straightforward. Others are quite complicated and it can take a lot of work to keep track of it all.
A dozen remote workers scattered across the country creates a dozen different tax scenarios to coordinate. Even if your tax liability drops by having a remote workforce, the time and energy spent to determine potential tax exposure can skyrocket, as may the risk of error (leading to tax penalties).
How to Prepare for Taxes on Remote Workers?
There are 50 different state tax codes to learn plus countless local tax liabilities that may come into play. So much that it can make you rethink the wisdom of hiring remote workers at all. Instead of being confined to one place (and labor market), get help navigating taxes on remote workers in any state.
Tax experts can help you register for payroll IDs, determine nexus, tabulate your tax bill, and juggle all your filing obligations. Above all, they let you focus on hiring the right remote talent without concern that tax issues will get in the way.
Before you hire someone in a new state, let’s talk. Contact the tax experts at Proseer.
