The drastic shift to remote work prompted by the COVID-19 pandemic has shifted signifcantly in recent years. While some employers have kept their remote work policies, allowing employees to continuing working from home, many others are issuing return-to-office mandates, requiring staff to return to in-person work daily or through a hybrid model where some days are mandatory in-office days and others are remote work days.
But what are the tax implications of bringing remote workers back to the office? And why do employers want employees back in the office? In this guide, we explore various tax breaks for working from home, along with practical steps for employers and compliance and legal considerations to keep in mind.
Overview of Tax Implications
The shift to remote work practically happened overnight due to the pandemic. And while many organizations transitioned smoothly to supporting telecommuters, there were several tax implications employers needed to keep in mind when staffing their remote workforce.
For example, in some cases a remote employee may live and work in the same city and town as the organization. However, other remote workers may live out of town, out of state, or even out of the country, which can result in various tax implications that employers need to be aware of. In these scenarios, an employer may need to file a corporate tax return in a new city or state where a remote employee is located, or they may need to register in a new state to withhold payroll taxes. These are known as nexus issues, and enforcing a return-to-office mandate can simplify compliance. These situations may be more common than you think, especially for offices located near state lines.
As an employer, understanding tax withholding for remote employees is crucial. To remain compliant, it’s important to know where each employee lives and works to ensure you’re abiding by state and local tax regulations. To avoid potential compliance issues, many employers are now considering return-to-office mandates to keep all workers in one centralized location to make tax management easier.
Tax Deductions and Benefits
Employers with on-site workers can deduct various office expenses, including utilities, rent, maintenance, office supplies, property insurance, and other relevant office expenses. Additionally, employers who offer employee benefits like health and wellness programs, gym memberships, or fringe benefits like education expenses and dependent care assistance can also deduct those expenses.
For employers with a remote workforce, there are still certain deductions and tax breaks you can leverage. While employers can’t deduct an employee’s home office expenses, they can reimburse employees for specific work-related expenses, such as cell phone plans or home office equipment, which can then be deducted from their taxes under an accountable plan.
Compliance and Legal Considerations
There are both tax breaks for working from home and tax deductions for in-office work, and it’s important for employers to be knowledgeable on compliance and legal considerations for both working environments. Bringing employees back to the office may change the tax nexus of the business, which can impact state and local tax obligations. This can also require adjustments with employee tax withholdings based on their employee’s new work locations. Working with a tax professional can help ensure you’re up to date on the tax implications of bringing remote workers back to the office.
Practical Steps for Employers
Instituting return-to-office mandates requires careful planning and execution to ensure a seamless transition. There are practical steps for employers to follow to make this transition as smooth as possible, such as:
- Documenting and reporting changes: When issuing a return-to-office mandate, ensure company policies and procedures are updated, along with updates to safety protocols, employee benefits, and remote work policies.
- Compliance reporting: Ensure the accurate and timely reporting of taxes, including any changes to employee working locations.
- Consult with tax professionals: Enlist the help of tax professionals to understand the tax implications of bringing remote employees back to the office, along with learning tips for optimizing employee benefits for tax efficiency.
Ensuring a Smooth Transition Back to the Office with Proper Tax Management
There are several tax implications for bringing remote workers back to the office. These implications include the possibility of a tax nexus and double taxation. However, issuing return-to-office mandates can also come with the possibility of tax breaks, such as deducting office expenses and benefits given to employees. However, bringing employees back to the office after granting them the flexibility of working from home isn’t always easy. Having a clear system in place for a return-to-office is essential, and one step to ensuring a smooth transition back to the office is proper tax management.
Utilizing the resources of tax withholding compliance services can help keep you in line with local, state, and federal tax regulations. At Experian Employer Services, our tax professionals can work with your team to deliver a better payroll tax experience that keeps employees satisfied and you in compliance. Contact us today to book a demo and learn more about how we remove the complexities of tax withholding compliance.