Tax Considerations for Remote Work
Mary M. Bachinger
Since the beginning of the COVID-19 pandemic more than a year ago, colleges and universities have been addressing the issue of staff working remotely, especially for those that reside out of state. Here, Tax Council members Dayo Adesuyi, tax director at University of North Texas System and Angie Leahy, associate vice chancellor for finance and controller at Washington University in St. Louis share how their institutions are dealing with the current and perhaps permanent continued employment of a distributed workforce beyond their respective states.
For remote employees of your institution, living and working out of state, what are the main considerations when contemplating their continued—and perhaps permanent—employment from where they live rather traveling to your campus?
Dayo: Our campus has had an out-of-state process for a number of years. The department hiring the employee has factors that they consider. COVID-19, however, did change the dynamic in the following ways—
- Increased requests from employees who worked in-state to work out of state
- The Provost’s office has reached out to us to get perspective on potential tax issues given the timing of some of the requests, etc.
- Increasing number of newly hired employees scheduled to relocate but looking to temporarily work out-of-state due to COVID-19
- Increased telecommuting from employees residing in bordering states
Some of the main considerations included cost/time (registering, filing returns, etc.) and compliance considerations.
Angie: We are a residential campus and a collaborative research institution. Next to safety, the in-person, residential experience and collaborative study are our top priority for our students and our faculty. Our first consideration with respect to remote work is whether a position is critical to support the best residential experience and research environment. To the extent that a remote employee location either contributes to or does not impair that experience, cost, tax, and other compliance issues are factors that we consider in determining whether to allow employees to work out of state.
How is your university addressing this issue at the current time? What solutions have you identified?
Dayo: We continue to follow established business processes for registering and filing where we need to. In some cases, employees are not certain when they will relocate. We generally ask the employee to provide the best estimate. We then research whether the particular jurisdiction has any COVID-19 exceptions that would allow us to treat the employee as working in-state for us, even though they are technically working out-of-state.
Where a jurisdiction does have a COVID-19 exception for temporary telecommuting employees and we want clarification of the jurisdiction’s rule, we will provide general information to the authority and ask for clarification. We have gotten responses back in all cases, which has helped to clarify emergency exception orders.
Where the out-of-state jurisdiction does not have any exceptions for COVID-19, or where it is otherwise unclear that an exception will be met, we then follow our normal process for out-of-state withholding and reporting (Including income tax, unemployment, etc.). We use ADP as a third party and they help us stay compliant with income tax withholding and filing, unemployment reporting, and with some of the other miscellaneous taxes or contribution payment and reporting requirements that some jurisdictions have.
Angie: At this time, we have allowed non-student, full-time employees to work remotely from their homes. Employees located out-of-state have been asked to self-identify their locations and we have complied with the employment tax requirements of those jurisdictions. Our U.S. presence has grown as a result and we have engaged a payroll service provider to assist with certain registrations and tax filings.
Are there any possible changes to current policies on the horizon?
Dayo: There could be. Even with a third party helping with the filings, etc. there are still challenges and issues that come up that we have to address. I think out-of-state employment will continue to be a topic of discussion for a while.
Angie: Yes, the university is expanding its remote work policy to allow for positions that, if conducted remotely, would not negatively impact the residential or research experience. This will largely consist of administrative positions not in direct support of students and faculty.
What’s your best advice to business officers and campus administrators who are grappling with how to get a handle on these issues?
Dayo: I think it is best to have guidelines that address the out-of-state employment approval process with protocols, and an information flow, linking the hiring departments: HR, Payroll, Tax, Risk, etc. If registering in the state for the first time, there should be time allotted to set the person up on payroll, register in the state if required, secure the proper forms from the employee (e.g., State W-4), consider other compliance related issues, etc. The use of third parties should be considered as appropriate, either to consult or help with compliance and reporting.
Also, know that this is an issue that many are grappling with, including for-profit corporations.
Angie: This is a complicated issue in the best of times. Our approach has been to consider the remote work environment during the COVID-19 pandemic separately from who we are as an institution. Initially, there was an overwhelming sentiment that now that we know we can work remotely, we should! But as we reflected on who we are as an institution, it become clearer that being together, creating community, was part of our identity in which we take great pride. The issue of remote work post-pandemic has become clearer for us as we realize that we want to share spaces. The compliance issues associated with continuing remote work where feasible and desirable have become more manageable as a result.
