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Taxing Times: Working From Anywhere = Tax Risk

Taxing times: Working from Anywhere = Tax risk

With an effective vaccine rollout and the lifting of restrictions across the US, many companies are starting to look at their return-to-work plans. Employees, however, are not as eager to return to the office on a full-time basis. According to a recent survey by Morning Consult, on behalf of Bloomberg News, nearly 40% of respondents said they’d consider quitting their jobs if they weren’t offered remote work flexibility. While some companies such as Apple, JP Morgan Chase, and Netflix are keen to bring employees back into the office, other companies such as Google, Twitter, and Facebook are embracing the new approach to work and have already started shaping their remote/hybrid work policies. Enabling the flexibility for employees to spend 3 days in the office, and 2 working from home, or even the opportunity to work fully remote could be hugely beneficial to productivity and talent strategy, but there are some important compliance issues to consider.

Where we work matters!

Where your employees are working can have a significant impact on where your business and employees owe taxes, and the amount of taxes owed. Different states and countries have different thresholds for the number of days a person can work within its borders before that person and their company owe taxes. Some cities even have local taxes based on revenue earned from work activities within their city.  Prior to Covid-19 companies would base tax withholdings on an employee’s assigned office location. With hybrid models taxes need to be withheld based upon where employees are physically working, which could get messy, especially when it comes to workers who split their week between working from home and crossing state lines for their office commute.

What does “Work from Anywhere” really mean?

The next era of hybrid work has tremendous opportunity for both employees and companies, but with the risk of audits increasing at the state and federal level, careful consideration should be placed on what “work from anywhere” really means. During the pandemic, many companies discovered a number of employees had gone rogue and were working in other states or even countries. In Topia’s recent Adapt survey, 78% of HR professionals’ were confident employees have been self-reporting when working in another state or country, the reality is only 33% of employees actually were doing so. This creates the risk of costly tax exposure, audits, and accidental creation of permanent establishments. 

As hybrid work models become commonplace, knowing where your employees are working is going to be crucial to avoid tax risk. Topia Compass provides accurate visibility to employee footprint to track working days in and out of city or country jurisdiction to optimize and comply with local tax laws, to learn more about how you can stay tax compliant watch this 2 minute video

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