February 27, 2021

Volume XI, Number 58

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Continued Remote Working Guidance for Employees

With the continuation of COVID restrictions, employers should consider certain actions in regards to employee withholding.  Most states only imposes tax on employees for services that are physically perform in the state.  If a resident performs services in another state, a credit will generally be provided by the home state for taxes to the state in which the services were performed.

As the COVID restrictions continue, your employees may consider submitting a revised W-4 to designate the state in which withholding should occur.  If the employee is located in a state in which the business does not have a fixed employment location, the employee should be advised to make estimated payments.  If your employees have not considered the impact of Work From Home, they may have overpaid to the state in which they normally reported for work, and will need to request a refund of taxes withheld. They may also be underpaid to the state in which they have been performing such activities.

While many states have issued guidance that the existence of remote work employees due to the COVID pandemic will not create nexus for the employer, such guidance has not been consistent, and in many cases, is not legally binding.  Nor should employers have comfort in the guidance issued by certain states to the contrary.  Businesses should be wary of continuing to withhold and remit employee income taxes to jurisdictions which they know the employee is not currently located. There are several legal challenges underway in regards to this issue.

In addition, state unemployment insurance rules (which is generally an employer cost, with no contribution by the employee), do not necessarily follow withholding requirements.  It can be costly and administratively burdensome to change employee work location in regards to state unemployment insurance. 

In summary, it is important for businesses to take additional steps now in order to mitigate their risk of 2021 negative impacts due to continued Work From Home requirements.  

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© 2020 Foley & Lardner LLPNational Law Review, Volume XI, Number 25
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About this Author

Lynn A. Gandhi Business Attorney Foley & Lardner Detroit, MI
Partner

Lynn A. Gandhi is a partner and business lawyer with Foley & Lardner LLP. Lynn is based in the firm’s Detroit office where she is a member of the Tax, Benefits, & Estate Planning Practice. 

Lynn has acquired more than three decades of experience as a tax attorney, including 14 years as corporate in-house counsel. She advises her clients on sophisticated multistate tax planning, audits, appeals and litigation and represents them in legislative and policy initiatives across multiple industry platforms. In addition, Lynn provides transactional support on the multistate tax...

313-234-2715
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