April 20, 2020
In early March, just as the coronavirus was staking its hold in our large metropolitan communities, the Centers for Disease Control and Prevention (CDC) began encouraging non-essential businesses to operate remotely. Over the following weeks, state and local governments issued directives to enforce these guidelines, and by mid-March, more Americans than ever before were working remotely. Remote work environments come with an intrinsic set of obstacles, including the need to expand network capacities, troubleshoot new forms of communication, and adopt more flexible work schedules. At the same time, Atlanta businesses have to consider tax and related management issues. To help clients, prospects, and others, Wilson Lewis has provided a summary of key issues below.
Having remote workers does not necessarily lead to new tax filing obligations for employers, but it could. It’s important to examine the potential tax exposure especially if employees are remotely working from another state. Tax filing obligations are typically triggered when a business obtains nexus in a new state. Each state dictates what activities generate nexus, but for most, employees performing regular work duties within their borders – even at an at-home location – will be enough. If nexus with a new state is identified, there are two types of taxes to consider.
Income Tax
Preparing a new state income tax return can be burdensome, especially to businesses that would otherwise only file in their home state. To properly prepare multi-state tax returns, it’s essential to learn how to apportion income. Some states apportion income based on sales numbers, but others use property, payroll, and sales data to determine an apportionment percentage. If the business has out-of-state workers, talk to a tax advisor right away. If the business understands what data they will request at the end of the year, then it’s easier to collect the needed information now and not worry about it at year-end.
Employment Tax
If the business has employees working from out of state, it may be necessary to source their payroll to that state. This won’t change Federal Medicare or Social Security payments, but the company will likely need to register for employment taxes in the new state, remit state-specific payroll taxes (like unemployment or disability insurance), and perhaps even withhold state income taxes on behalf of remote workers.
Although this list is not exhaustive, there are a handful of non-tax issues to consider with out-of-state employees.
Business Registrations
With out-of-state employees, a business may need to qualify the entity to do business in that state. Fortunately, in most states, this is a simple process. Many will be required to obtain a registered agent, file annual informational returns with the Department of Commerce, and pay a small annual fee.
Data Privacy
This is a serious concern that many businesses are working to address. Ensuring the data protection measures which are taken in the physical office can be replicated virtually. To mitigate security breaches, the IT team may need to supercharge the VPN or install additional laptop security measures. Once the new protocols have been implemented, invest time in training employees on how to apply these measures. This will go a long way to ensure all sensitive data is protected.
Worker’s Compensation
Employees may sustain a work-related injury while working from home, so review insurance policies to see how worker’s compensation applies to remote workers. If existing provisions are inadequate, consider adding a rider to the policy or sign a new policy altogether.
The COVID-19 emergency has created a bevy of challenges that businesses now need to consider and manage. While many are currently focused on loan programs to build cash flow, it’s important to remember there are other areas where attention will be needed. If you have questions about the information outlined above or need assistance with a COVID-19 tax planning or compliance issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us.