The COVID-19 pandemic created significant financial, operational and management challenges for Georgia businesses. Navigating the sudden stay-at-home orders, forced business closures and other mandates may have required a shift to a remote workplace. Now that restrictions are being lifted, employers must determine whether the option to work remotely will remain or if workers will return to the office. Employees appear to favor retaining the option to work remotely. A recent Pew Research Study found that 71% of workers performed job tasks from home during the pandemic. When given a choice about whether to stay remote, 52% prefer to keep working from home post-pandemic. While there are certainly benefits to the approach, including productivity gains, businesses need to be aware of the pitfalls as well. An important consideration is the state tax liabilities that may arise when an employee works out of state. To help Georgia businesses, we are providing a summary of the key issues below.
Establishing Nexus
When evaluating the tax impact remote workers may have on a business, determining whether nexus exists is the starting point. Essentially, nexus is a technical term used to describe when a business has a tax presence in a state. Examples of presence may include an office location, a warehouse, employees working in state or the solicitation of sales. During the pandemic, many states offered relief to businesses with employees that were forced to work remotely. However, as pandemic-related orders expire, so do the relief provisions.
For example, Georgia offers temporary relief if there is a federal, state or local government work-from-home order. However, without such orders, the normal rules for determining nexus will be applied. These rules require both the employee and employer to pay certain taxes. Unfortunately for Georgia businesses, the presence of remote workers in Florida, Tennessee, Alabama, South Carolina and North Carolina may establish nexus.
Potential Tax Liability
Depending on circumstances, a business may simply withhold taxes for the state where the employee works and be exempt from home state taxes. Unfortunately, Georgia or the surrounding states do not have such an agreement currently in force, meaning Georgia businesses with remote workers may be required to pay additional taxes. There are several potential issues that can arise, including:
- Business Taxes – Since each state has different regulations for out-of-state workers, it is impossible to provide a definitive outline without more details. Generally, once nexus is established, a business may be required to register with the Department of Revenue and be subject to state income, franchise, and sales and use tax requirements.
- Employer Withholding – A business will also be required to withhold from employee pay the amount necessary to cover the new state income tax liability. This amount would be in addition to any withholding for the employer’s home state. Concurrently, the employer will also have to pay state income tax on employee earnings and may have additional exposure as many cities impose taxes on residents providing services.
Weighing the Options for Your Business
As Georgia businesses evaluate whether to require employees to return to the office, deploy a hybrid model or continue to permit remote work, it is imperative to consider the tax consequences of each option. For some, the additional tax exposure may be significant and require appropriate tax planning to manage new requirements. If you have questions about the information outlined above or need assistance with remote worker tax issues, Moore Colson can help. For additional information, contact us.
Andy Starnes, CPA, is a Partner and Tax Services Practice Leader Moore Colson. Andy’s specialties include corporate tax compliance and planning, business consulting and multi-generational planning with a focus on the construction, professional services and staffing industries.
