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WFH during Covid-19

We, as many employers, are having their employees work from home. We are in all 50 states and we withhold on hundreds of localities. As employees WFH, their home taxation is different from their work taxation. How are other employers handling this scenario? Are you updating the Work State or the City taxes based on their working from home during this crisis. General feeling seems to be no -- this is short term. OH and NJ have said not to make changes during this time. Wondering if anyone has had a ruling from other state or localities. To change thousands employees tax setup would be a nightmare. Not to mention, particularly for the states we may not have previously had a need to register in a particular locality. Then we would have to change everything back when things go back to normal. Any input is much appreciated.

Comments

  • If people are working from home, they are working where they are residents and the income is taxable in those states and localities anyway (for the most part) regardless of duty state or locality. Also, reciprocal agreements apply in some cases. For withholding purposes, you should not change the withholding unless you get a new state W-4 Form for the employee. Whether you need to ask employees to do this depends, in part, how long this thing goes on. The employees will be reporting their earnings to their state of residence on that state's income tax form as well as showing the amount earned and taxes withheld for the duty state. If nothing else, show the wages attributable to each state on the W-2 (or report as required - e.g. it is my understanding that NY wants NY wage box to report the same amount as federal wages in box 1 if the employee worked at any time during the calendar year in NY.

    The obligation for the employer to withhold thresholds seem more related to employees traveling to a state that is not their usual duty state or the employee's state of residence. A number of states have a dollar and/or time threshold for with the employer must withhold for employees traveling to that state for work. I presume that this is to identify employees working within the state as opposed to employees who are already state residents.
    Probably the best approach, rather than changing employee's tax setups back and forth, set up withholding in the system for both states and code the wages appropriately - which may be necessary anyway for W-2 reporting. Or, set the tax rate for each state based on a percentage of work location expectation.
    J some thoughts on my own - Other insights and criticism welcome.

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