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3 Tax Withholding Considerations for Your Remote Employees

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3 Tax Withholding Considerations for Your Remote Employees

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Remote employee taxes

Whether your practice has one remote worker or 20, you can’t afford to make legal mistakes when it comes to the employment and tax rules. As many staffers have shifted to remote work during the pandemic, you’ve had to learn about purchasing at-home office equipment, ensuring you meet HIPAA regulations for remote staff, and much more. But there’s one more thing you can’t forget when it comes to remote workers, and that’s implications for remote employee taxes.

If you withhold the wrong amount of taxes, charge too much, or fail to pay US taxes for a remote attorney who moved abroad, you could get yourself into legal trouble that could cost you thousands.

Check out these three considerations that can help you stay on the right side of the law when it comes to remote employee taxes.

1. Withhold Taxes Where the Work Is Performed

Suppose your practice is in Alphabet City, which has a 7 percent tax rate, but your employee starts working from home in Biospace City, which has a 5 percent tax rate. Which rate should you charge? The answer usually requires you to pinpoint where the work is actually being performed. If the employee lives in Biospace City but performs most of their work at your office, then the 7 percent rate typically applies. But if the staffer performs the majority of their work at home, you’ll look to the 5 percent rate.

Keep in mind, however, that some states and counties put temporary rules in place when the pandemic began, noting that since some remote work wasn’t expected to be permanent, it was OK to keep reporting the tax rate of your office rather than where the staffer’s home office was. In some areas, that temporary rule around remote employee taxes is still in place, but not everywhere. So it’s important to do a bit of homework to see what the rules are in your state, county and city to evaluate the current regulations specifying a remote worker’s tax rate.

2. You May Have to Incorporate or Register in Employee’s State

When it comes to the state level, the issue of remote employee taxes can get more complicated, because your business may not be registered with the tax authority in every state. So if your employee moves across the state line, you’ll have to register with that state’s tax authority to ensure that you can pay the state for that employee’s work. Further complicating this issue is that some states don’t impose state income taxes on residents, so if your employee works in a state that doesn’t have state income tax, you likely won’t have to worry about the issue at all. However, you may still have to register as a foreign business in that state just to have an employee there.

The only way to know for sure is to contact an attorney or the secretary of state’s office in the employee’s state and find out what your business obligations are in terms of registering and paying income taxes for your remote employee.

3. International Remote Work? Consult an Attorney

Your tax obligation could change dramatically if a remote employee moves abroad, because establishing a taxable presence in another country could open your business up to new rules that govern the types of business activities that can be conducted in that country and international tax payments. Your best bet in this situation is to contact an international attorney well versed in international tax law, since the rules are different depending on where your employee decides to live.

There’s much more to discover about staying on the right side of the law when you employ remote staff members. To master the nuances of this topic, check out the online training session, Prevent Remote Worker Legal Violations with Bulletproof Policies, presented by Kelly Holden, Esq. During the 60-minute training, you’ll find out how to ensure that you aren’t in violation of any remote employee laws.


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