Tax Alert- Watch out for tax consequences when hiring telecommuters outside your state
If you allow employees to telecommute, be sure to consider the potential tax implications. Hiring someone in another state, for example, might create sufficient nexus to expose your company to that state’s income, sales and use, franchise, withholding, or unemployment taxes.
And the employee might be subject to double taxation if both states attempt to tax his or her income — the recent Supreme Court ruling in Comptroller of the State of Maryland v. Wynne addressed a similar issue, although in that case the taxpayers weren’t telecommuters but owners of an S corporation that earned income in other states.
The rules vary by state and also by type of tax — and become even more complicated for international telecommuters. So it’s a good idea to review the rules before you approve a cross-border telecommuting arrangement. If you’re considering hiring employees to telecommute from outside your state, we can help you assess the potential tax impact.