KEY TAKE AWAYS:
- Multi-State remote or hybrid employees may reshape an organization’s state and local tax reporting requirements.
- State tax nexus can be established though a variety of factors besides employee presence.
- Consult with OnPoint about your multi-state taxation requirements.
Understanding Nexus for Remote Employees: A Guide for Employers
Multi-State remote or hybrid employees may reshape an organization’s state and local tax reporting requirements.
State tax nexus can be established though a variety of factors besides employee presence.
As businesses increasingly embrace remote work, the question of tax nexus has become a crucial issue. Traditionally, nexus refers to the connection between a business and a state, which obligates the business to collect and remit sales tax or comply with other tax requirements in that state. However, with the rise of remote employees working from different locations, the concept of nexus has become more complex. In this blog post, we will explore what nexus means for remote employees, how it impacts employers, and the steps businesses can take to ensure compliance.
Nexus for Remote Employees: The Changing Landscape
When remote employees work from different states, they may create tax obligations for their employer in those states. This is because many states have broadened their nexus standards, moving beyond just physical presence to include economic factors such as sales volume and the location of employees.
Key considerations include:
- Employee Location and Income Tax:
If a remote employee lives and works in a state different from where the company is located, the employer may be required to withhold state income taxes based on the employee’s state of residence or where the employee is physically working. This means that even if your company operates out of one state, you could have to withhold taxes in multiple states depending on where your employees are located. - Sales Tax Nexus:
While sales tax nexus is typically associated with a physical presence, remote employees can also create economic nexus. If an employee in a remote location is helping to facilitate sales, processing orders, or providing services in that state, the business could be required to collect and remit sales tax in that state, depending on the state’s rules. - Payroll Taxes:
Different states have different rules for unemployment insurance, workers’ compensation, and other payroll taxes. These taxes can be triggered by remote employees, even if the company is based in another state. Employers need to ensure they are complying with the relevant payroll tax regulations in every state where they have remote workers. - State-Specific Nexus Rules:
Each state has its own definition of what creates nexus. Some states have adopted “economic nexus” rules that require businesses to collect sales tax if they meet certain sales thresholds, even without a physical presence. States like California, New York, and Massachusetts have specific guidelines for how the presence of remote employees can create tax obligations for businesses.
How to Manage Nexus for Remote Employees
To ensure compliance with tax laws related to remote employees, businesses should take the following steps:
- Keep Track of Employee Locations:
Maintain accurate records of where remote employees are located, as state tax laws often vary based on the employee’s residence or where the employee is working. Regularly review this information to identify potential nexus triggers in different states. - Consult with OnPoint:
Navigating nexus laws can be complex. It’s a good idea to consult with your OnPoint representative who specializes in multi-state taxation. We can help you understand the rules in each state where you have employees and guide you in fulfilling your tax obligations. - Register for State Taxes:
If you determine that you have nexus in a state, you may need to register with the state tax authority. This can include registering for sales tax, payroll taxes, or income tax withholding, depending on your business activities and the state’s requirements. - Automate Tax Calculations and Filing:
Many businesses use tax automation software to calculate and file taxes across multiple states. These tools can help streamline the process and ensure compliance with state-specific tax rates and regulations. They can also help with employee payroll taxes, sales tax collection, and income tax withholding. - Stay Updated on Nexus Laws:
State tax laws change frequently, and remote work has accelerated this shift. Stay informed about nexus laws and any changes that might affect your business. Many states are revising their nexus standards as remote work becomes more common, and businesses need to adapt quickly.
Reach out to your OnPoint Tax representative to discuss further if you have additional questions.