Dear Littler: What is so painful for our errant workers? – Tax

Dear Littler: You alerted us to some issues with wages, hours, time off, and benefits stemming from our “errant workers” who scattered across the country during the pandemic, but continue to work for our Texas-based company . We have new questions for you. We received calls this week from two very unhappy employees. One of them has been looking after his parents intermittently in Duluth since April 2020. He continued to work for us while in Minnesota, but he still has a house here in Texas where he checks in periodically. He is surprised that we withheld Minnesota income taxes because he never paid such taxes in Texas. Who is right here? Our other employee, who was pregnant and concerned about the low COVID-19 vaccination rate in Texas, temporarily moved to her sister’s home in New Jersey during the last months of her pregnancy, while continuing to work for our enterprise. She recently gave birth and applied for NJ Paid Family Leave benefits, but was refused. She claims that New Jersey family leave insurance should have been deducted. Is she right? Finally, the two employees ask us to cover their internet service. Would these payments be considered taxable expenses?

– Concerned and wondering about the taxation of our travelers

Dear worried and amazed people,

These problems are, in fact, taxation. And complicated. There’s a lot to unpack, so let’s start with your employee who worked in Minnesota. Texas, as you know, has no income tax. But employers must withhold and remit income taxes to each state if necessary, and states have very different rules as to when these taxes must be withheld. For example, New York has a 14-day rule that states that if an employee works in the state for 14 days or less per year, there is no withholding of income tax. New Jersey and Mississippi use dollar thresholds. Additionally, some states have reciprocity agreements that eliminate withholding income tax. For example, if an employee lives in New Jersey but works in Pennsylvania, the employer is not required to withhold Pennsylvania income taxes under an agreement between New Jersey and Pennsylvania.

In your situation, under Minnesota law, if an employer is required to withhold federal income tax, they also have an obligation to withhold Minnesota income tax. So as long as the employee earned something while working in Minnesota and federal income tax was withheld, you are also right to withhold state income tax.

Additionally, Minnesota, like most states, also states that if you live in the state for more than 183 days (about half of the year) then you are a resident subject to income tax. . You noted that the employee traveled back and forth from Texas during this time, so we don’t know how much time they spent in Minnesota compared to Texas, but they may be subject to a withholding. income tax as a resident of Minnesota even though he kept his home in Texas and returned. It is also possible that the Minnesota income tax withholding was too high because he was not a resident and stayed in Texas for a while, but it is a separate matter that he will need to settle with the State of Minnesota by filing a non-resident claim. tax declaration and refund request. What we do know is that if you hadn’t withheld income tax, you could have subject the business to potential penalties for under-withholding. It should be noted that most states have withholding tax forms and EI benefit notices that should be given to employees when they move to a new state.

This brings us to your second employee who works from New Jersey. Unlike income taxes, which can be withheld in more than one state, taxes on employment or wages are only paid to one state. How do you determine which state? All states use the same four-part test, which takes into account: (1) location of services; (2) base of operations; (3) place of direction and control; and (4) the employee’s state of residence.

This test should be applied in hierarchical order; that is, an employer must first determine whether the job is located in a particular state before the next step is considered. An employee’s services are “localized” in a particular state if all or most of the employee’s services are provided in that state, with only ancillary services performed elsewhere (for example, when the service out of the state). Condition is temporary or transient in nature or consists of isolated operations). When services provided out of state are permanent, substantial, or unrelated, they cannot be treated as localized in a particular state.

In many cases, it is clear that the services are located in a particular state. If so, that’s the end of the analysis. However, it is not clear from the facts you have provided whether Texas or New Jersey is the appropriate state. What work does she do? How long has the employee been in New Jersey? Does she plan to stay there for a while or is she going back to Texas?

If the employee’s services are not located in a particular state, the next step is the base of operations scan, which focuses on where the employee usually returns to receive instructions or supplies. , to repair the equipment or to perform other functions related to the provision of services. In your case, it looks like the base of operations is Texas, but we would need more facts from you to be sure.

If the employee’s services are neither located nor subject to a base of operations, the third consideration is the place of direction and control, which is often a head office or regional office where the employee receives instructions. As noted in Part 2 of this test, it seems fair to assume, given the information you provided, that Texas is where the employee gets their instructions.

If, however, none of the above factors provides a clear answer, then the social charges are due to the employee’s state of residence. As it appears New Jersey is a temporary location, it seems reasonable that you continue to report your employee in Texas for payroll tax purposes. This means that you are probably not on the hook for family leave insurance payments that are part of a New Jersey-based employee’s payroll taxes. If the employee continues to work in New Jersey, you may need to reconsider the issue.

Regarding your question about business expenses, some states require employers to reimburse their employees for business expenses, but most do not, including the states involved here. If a company chooses to reimburse its professional expenses to workers, it can do so on a non-taxable basis if the employee justifies the business purpose and nature of the expense, usually by means of an expense report accompanied by submitted receipts. within a reasonable time. , and is only refunded the exact amount claimed. Alternatively, an employer can reimburse employees a lump sum without considering actual expenses. In such cases, the reimbursement of expenses is taxed as salary for federal and state tax purposes.

IRS guidelines have clarified that employers can reimburse employees for reasonable expenses related to the use of their personal cell phones on a tax-free basis. This principle should apply to Internet service, although it is important to recognize that home Internet use is not always a business expense. As a result, some allowance of a reasonable amount to reimburse business use must be made, as opposed to simply paying employees’ internet bills. This assessment generally requires employers to make reasonable inquiries regarding costs and business use.

In short, Worried and wondering, there are different ways to reimburse employees for their work-related internet expenses, but you will need to decide if you want to provide them with a flat fee per week or per month to cover the expenses while they are working remotely and not worry receipts, or if you want to make payments tax-free and collect the information and documents necessary to ensure that the payment does not exceed business expenses.

As you can see, the tax implications of roaming workers can be tricky and highly dependent on location. It is therefore essential that you keep an eye on where your employees perform their tasks and for how long.

Originally posted July 8, 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

About Yvonne Lozier

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