Employees temporarily working in another state

employer, small business, tax

Perhaps the fastest growing type of tax problem for small businesses is wage tax liability in states where they did not know they had any business connection. Employers are usually caught by surprise when another state demands taxes along with interest and penalties for an employee who worked there for a short time. This is often the result of the increase in remote workers where the employer may not know exactly where an employee is at any given time. Most states have taxes for wages earned within their boundaries. Laws in all 50 states are different but most do not exclude tax requirements for temporary workers. As the technology for tracking remote workers improves, the number of tax assessments also increases.

In all cases, the resolution approach is the same:
1) Know the state law.
2) Know the facts (neither the remote employee nor the state auditor may be completely reliable for purposes of resolving a tax controversy).
3) Register with the state for business taxes.
4) Make adjusted filings (some payments and some refund requests).
5) Negotiate penalties.
6) Adjust wage reporting procedures to prevent a recurring issue.

For employees, the issue is different. It is primarily an issue of accurate filings in multiple states after the fact. For both do-it-yourself tax filers and professional tax preparers, this is one of the most technically difficult issues faced in tax return preparation.

The good news is that employers and employees owe taxes in just one state or another, not multiple states on the same wages. So that means that if taxes were withheld in one state that turns out to be the wrong state, then it is essentially a matter of transferring payments already made with little net cost rather than owing a whole lot more.

I am happy to discuss representation in an employer wage tax issue as well as help to strengthen payroll procedures to ensure that the problem does not catch you by surprise again.

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employer, small business, tax

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