Whether you hire telecommuting personnel or are a long-distance worker yourself, you’ve probably already encountered one of the coming decade’s biggest tax challenges. Until recently, people who lived in one state and worked in another were relatively rare, and most of them commuted just a few miles across state lines. Today, a web designer who’s based in Florida might work for a firm in New York. Which state gets that person’s tax dollars? How do accounting firms handle withholding? Can telecommuters avoid paying double the state tax?
Turning telecommuting tax troubles over to your CPA firm is the ideal way to ensure full compliance while keeping your personnel from paying too much. These scenarios tell you more about your telecommuting workers’ specific status and what it means for your business.
In some states, reciprocal agreements allow working across state lines without a double tax burden. Non-residents pay their taxes to their resident state instead of to the one in which they work, and both states recognize this arrangement. New York currently has no state tax reciprocity with its neighbors, so anyone who works in New York must pay state taxes here. To prevent double payment on taxes, telecommuting employees in neighboring states can work with their residential state’s department of taxation.
″First Day″ Laws
In recognition of workers who travel across state lines as part of their employment, many states have a grace period within which no tax withholding happens. Others have ″first day″ tax laws that assume an employee is eligible for taxation and withholding from the first day of work in that state. For workers in New York, the laws allow some leeway; working in the state for fewer than 14 days incurs no withholding, but anything over that amount requires payment of New York state taxes. In New Jersey, tax laws require that workers must earn less than their personal exemption in the state during a calendar year to be exempt from state taxes. The state-by-state details are something a New York CPA can explain to you more fully.
Convenience vs. Necessity
Current tax laws are up for discussion in most states, including New York. State tax withholding and payment could change if lawmakers amend current convenience vs. necessity laws. In New York, anyone who maintains an out-of-state workplace out of convenience instead of necessity is subject to taxation. Those who work in the state but live elsewhere out of necessity, however, may be exempt. To become exempt, telecommuting workers must meet a single primary factor, such as access to special equipment or accommodations for disabilities, or a collection of secondary factors. From an employer’s standpoint, a CPA firm can handle registration to pay taxes in another state for employees who are exempt from New York state taxes. Your financial advisor can also go over primary and secondary exemption factors with your remote workforce.
Telecommuting personnel come with great advantages, especially for New York-based businesses who can find a bargain on talent by looking farther afield. Tax laws haven’t yet caught up to the 21st century workplace and its far-reaching scale, so work with an experienced CPA before setting salaries, telecommuting workers or hiring employees who live across state borders.
© CPA Services 2015 All Rights Reserved.