Have Remote Workers? Here are Tax Considerations Nonprofits Should Keep in Mind

Have Remote Workers? Here are Tax Considerations Nonprofits Should Keep in Mind

With remote and hybrid work now the new standard, a larger talent pool has opened up for nonprofit organizations. The ability to recruit on a national level can help many organizations survive and even thrive when they are already struggling with high turnover and difficulty sourcing quality talent due to an economic downturn.

However, with this opportunity comes more complex tax regulations. As temporary COVID-19 tax exemption rules have expired, not-for-profits must prioritize understanding the ins and outs of state and local tax compliance regarding remote work.

Understanding the Tax Considerations

Initially, most organizations worldwide considered the work-from-home environment as a temporary solution. But now they've realized that remote work offers benefits, such as improved employee satisfaction, reduced overhead costs, increased productivity and access to global talent.

Unlocking state and local tax compliance can be challenging because each state has different tax codes. To ensure compliance, you must assess each employee and their unique situation along with how such situations may create additional nexus considerations and filing obligations for the entity. While this may be relatively straightforward if employees are permanently stationed in one location, it becomes complicated when they regularly travel and change their homebase for work. Determining nexus and how local state laws will affect your workforce may require a lot of research and patience.

Once nexus is established, your organization may be responsible for income taxes, gross receipts taxes, sales/use taxes, payroll taxes and other local taxes. Even if the nexus results in minimal or zero additional tax, it is still crucial to abide by state filing rules to avoid penalties.

Convenience of Employer Rules

Employees working for an employer in another state (e.g. the employee's resident state) usually are only subject to payroll withholding taxes where they live. However, five states tax income even when the employee doesn't live there, referred to as "convenience of employer rules." States implementing this rule claim that remote employees who are assigned to a work location in that state must have withholding done in that state, regardless of where they live and how frequently they may work in that particular state.  

States currently imposing convenience of the employer rules are Connecticut, Delaware, Nebraska, New York and Pennsylvania. There are some exceptions to the rule, the biggest one being if the employer requires the employee to work in another state. If an employee's job requires them to work in another state, they are not subject to the rule.

In addition, your organization must also keep payroll considerations in mind when it comes to untangling the logistics of state and local tax implications for remote employees.

Other Important Considerations

Your organization should also ensure it doesn't miss any blindspots associated with a remote and hybrid work environment. Strategies like establishing written policies and documenting reimbursement transactions can help companies manage the associated costs of remote working arrangements more effectively.

Considerations include:

  • Home Office and Expense Reimbursement: Depending on your state, you may need to implement reimbursement policies for equipment and supplies employees require to work from home. Put your policy in writing, so your employees know what will be reimbursed. Also, remember that you may be required to reimburse or provide special equipment and services to remote workers with disabilities.
  • Employee Handbook Guidelines: Work with your human resource department to create a remote work section in your employee handbook. Address topics such as confidentiality of company information, cyber security rules, dress code for video conferences and compensation guidelines.
  • Worker's Compensation Insurance: Even remote employees must be covered by worker's compensation insurance. Be proactive when understanding how the Occupational Safety and Health Administration (OSHA) and workers' compensation play out with injuries at an employee's residence. Help employees lessen the risk of a workplace injury by offering tips such as ergonomic assistance or safety training.

Next Steps

Navigating the complexities of the state and local tax implications associated with remote and hybrid work can be challenging and time-consuming, especially for organizational leaders who are already stretched thin. Enlisting the help of a professional tax team can help ease the burden. If you need assistance or have any questions, please contact us.


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Have Remote Workers? Here are Tax Considerations Nonprofits Should Keep in Mindhttps://www.cbiz.com/Portals/0/Images/Hero-Have-Remote-Workers-Here-Are-Tax-Considerations-Nonprofits-Should-Keep-in-Mind.jpg?ver=_WRLPrzAHfu8udkoOrmkSw%3d%3dhttps://www.cbiz.com/Portals/0/Images/Thumbnail-Have-Remote-Workers-Here-Are-Tax-Considerations-Nonprofits-Should-Keep-in-Mind.jpg?ver=JPJvuzYNOpyY1GRCmimYJQ%3d%3dTax regs. are complicated with not-for-profit orgs taking advantage of the remote worker pool. Here are the top considerations.2023-01-27T18:00:00-05:00

Tax regs. are complicated with not-for-profit orgs taking advantage of the remote worker pool. Here are the top considerations.

Planning & Tax MinimizationFederal TaxState & Local TaxTax ReformYes