Have you hired or transitioned employees to a remote or hybrid work model recently? Here’s how that could affect your business taxes.
State Laws and Taxes
More than ever before, people are working from home offices. And that means you and your payroll department must be on top of the laws and taxes that not only govern the state your business is based in, but also the states where your employees live and work.
If your remote employees are based in the same state as your business, you can use your state’s employment and tax laws for everything. But if you have remote workers who live in other states – or even countries – it is still your responsibility to withhold and file the necessary paycheck percentages and tax files that apply to their state of origin as well.
This remote employee and their work may also mean that you have to pay different amounts in income tax and even possibly minimum wage if each state involved has differing policies. For example, if your business is located in Michigan – where the minimum wage is $9.87 an hour – but your employee is working from Illinois, you’ll have to make sure your payroll employees or third-party service accounts for the $12.00 minimum wage in place there.
These differences also often exist at the local level as well, and can also affect Social Security and Medicare withholding, too.
When it comes to remote employees, the more variables you contend with, the more difficult it will be to accurately calculate and file the applicable taxes per each employee, state, and situation.
Remote Work & Taxes: Credits, Incentives
According to the Tax Adviser, there are tons of tax incentives and credits that are specifically tied to geographic areas. And when your employees reside outside those areas, you potentially lose out on some of those perks.
The evolving remote work environment is creating a lot of buzz around the effectiveness and application of these location-based incentives. It also calls into question the possibility of taking advantage of the incentives that apply not only to your business’s location, but the eligibility your business may use when it comes to each employee’s area of origin as well.
Remote Workers Aren’t Independent Contractors
It’s important to remember that in some ways, shifting any number of employees to remote work solutions may not change your business taxes in certain areas. But shifting work to independent contractors or freelancers who work remotely is a different situation.
Whether the work is done in-house or remotely, the status of employee versus independent contractor still holds.
We have several blog posts to help you understand the topic:
- What’s the difference between an independent contractor and employee?
- Hiring Independent Contractors – What You Need to Know
- What Is a Contingent Worker and Why Should You Care?
- Employee vs. Freelancer: Who Should I Hire?
Regulations for employees versus independent contractors are very different, and so are the forms and deadlines that are associated with each.
The first thing you should do before filing any tax forms for payments made to individuals who did work for you in the current tax year is to clearly establish what type of worker they are. Then, you can figure out which forms and reporting you are responsible for filing.
Complete Your Tax Forms Electronically and Save Them Effortlessly
Running a business is hard work, and we know business owners, payroll professionals, and financial departments are always looking for great tools to make tax form filing and data storage easier. Luckily, eFile360 has you covered, even when it comes to remote work and taxes.
For help with your remote work and contractor tax needs, sign up for a free eFile360 account today.