The Hidden Minefield of Remote Worker Tax Withholding

The push to remote work continues to have ramifications, and now the wave of impact has been hammering accounting offices in every industry due to the payroll tax withholding implications. Generally, all payroll in the U.S. is taxed, and employers are responsible for withholding and sending those estimated tax amounts to tax agencies like the Internal Revenue Service and state tax agencies. This in turn allows the government to receive and hold onto more of its potential tax income right away versus waiting for the end of the year at tax filing. If too much is collected, the employee gets it back as a tax refund when filing their taxes, which is also required by law.

Like Real Estate, Location Matters

However, due to the massive shift in how employees provided their services to employers, a sizable number of staff realized it was quite possible to work elsewhere, very different from the physical location of their employer. In some cases, it was another city, or another state. However, in more than a few cases, that even involved working in another country. State-hopping was very common for those who wanted to stay domestic, and some states like Hawaii practically advertised to remote workers to relocate. Why? Payroll taxes go both to the federal government and the state they were earned in. So, for remote workers, the more who moved to another location, the more taxes became available for that jurisdiction. Suddenly, remote workers were attractive to government.

Much of the relocation impact wasn’t really in the spotlight at first as employees continued to earn their paychecks. However, about a year in, somewhere around 2021, tax withholding issues started cropping up, and accounting services started warning their clients of compliance issues. Remote workers became more of a task to manage, especially for big employers still handling large amounts of payroll.

Resolving Payroll Taxes Regularly

For those who don’t have in-house accountants, third party help like that from Remote Quality Bookkeeping can make a huge difference in managing the remote worker tax challenge. There’s a certain expertise that comes with dealing with a large volume of accounting issues, particularly with labor, and it has a high learning curve for those not used to the intricacies. For businesses who are struggling to keep their records straight and provide the right tax withholding, it’s really an advantage to bring in technical expert support on this kind of accounting issue.

Payroll tax requirements shouldn’t be ignored either; the penalties can be extremely serious and painful financially. Instead, having payroll support take on the bulk of the processing saves a lot of headaches as well as a lot of financial frustration. And, one can still keep their remote workers productive instead of making everyone angry with forced return to work directions.