Creating a Telework-Friendly Tax Code

State and Federal Policy Responses on Multi-State Taxation

The way we work is changing—and tax codes haven’t caught up. The rise of telework can lead to double taxation for employees and exposure to new taxes for employers.

Not only will many workers face filing requirements in multiple states, but in some cases, so-called “convenience rules” will obligate them to pay taxes on the same income to two states, with no offsetting credits. Even working remotely for a single day in some states is enough to trigger filing obligations, and sometimes you may owe taxes where your office is located, even if you never set foot in that state. Meanwhile, as their employees spread across the country, some employers will have nexus with additional states’ business taxes for the first time, generating massive new tax bills.

If telework and other multi-state work arrangements are here to stay, reforms will be necessary at both the state and federal level to avoid penalizing remote work arrangements. In the short term, moreover, some states may find it beneficial to implement legally dubious tax rules designed to tax out-of-state workers, but over the long term, such policies could drive entire businesses out of state as companies relocate their offices to areas more favorable to telework. Increased flexibility on where employees live and work has the potential to change the competitive landscape, as employees and employers alike are freer to take taxes and other costs into account.

We recently hosted an exclusive Talking Tax Reform webinar discussion to learn more about convenience rules (the so-called “telework fairness” issue), nonresident filing requirements (the “mobile workforce” issue), and business nexus standards (the “BATSA” issue) and consider both state and federal tax policy responses to create a fairer, more competitive telework environment.

Tax Foundation President Scott Hodge moderated the panel discussion, which included: