Tax Planning for Remote and Hybrid Workforces

The "Work From Anywhere" Trap

It sounded great. "We are going fully remote!" you announced. \"Hire the best talent, regardless of geography!\" Everyone cheered. Productivity stayed high. The office rent disappeared.

Then your accountant called. "Hey, did you know that because Sarah moved to Ohio, we now have to register the business in Ohio, collect Ohio sales tax, and pay Ohio unemployment insurance?"

The cheerleading stopped. The reality of remote work is that while technology has erased borders, the tax code has reinforced them. State governments are hungry for revenue, and having a single employee tapping on a laptop within their borders is often enough to trigger "Nexus"—a taxable presence. If you aren't careful, your remote dream can turn into a compliance nightmare.

The Nexus Nightmare

Nexus is the legal link that allows a state to tax a business. In the old days, you needed a factory or a warehouse to create nexus. Today, you just need a warm body. If you have an employee working from their kitchen table in Texas, you generally have nexus in Texas.

This means you might be on the hook for:

• Corporate Income Tax: You might have to pay tax on a portion of your company's total profit to that state.
• Sales Tax: Even if you sell digital products, having a physical employee there might compel you to collect sales tax on all sales to customers in that state.
• Franchise Tax: Some states charge a fee just for the privilege of doing business there.

Payroll Pain

Payroll is not one-size-fits-all. You must withhold income tax based on where the work is performed, not where the office used to be. If your graphic designer lives in New Jersey, you withhold Ohio taxes at your peril. You need to register for a withholding account in New Jersey and follow their rules.

And then there is the "Convenience of the Employer" rule. States like New York are aggressive. If your company is based in NY but an employee chooses to work from Connecticut for their own convenience, NY might still demand income tax from that employee. This leads to double taxation issues that drive HR directors crazy.

Home Office: The Employee's Gripe

Employees often ask, \"Can I deduct my home office?\" Under current federal law (TCJA), W-2 employees cannot deduct home office expenses. That deduction was eliminated through 2025. They can't deduct their internet, their desk, or their electricity.

However, the business can reimburse them tax-free. An \"Accountable Plan\" allows the company to reimburse employees for reasonable business expenses (like a portion of their internet bill or a new monitor) without that reimbursement counting as taxable income to the employee. It is a great perk to offer, but you need a formal written policy.

The \"Nomad\" Employee

What about the guy who works from an Airbnb in Florida for two months, then goes to Colorado for ski season? This is a ticking time bomb. Most states have a threshold (sometimes as low as 1 day, sometimes 30 days) where tax obligations kick in. If you don't track where your people are, you are flying blind.

How to Fix It

1. Audit Your Footprint: Right now, make a list of where every single employee is physically located. Compare this to where you are currently registered for payroll and sales tax.

2. Use a PEO: A Professional Employer Organization (like Justworks or TriNet) can be a lifesaver. They become the \"employer of record\" for tax purposes, handling the multi-state registrations and filings. It costs money, but it offloads the compliance risk.

3. Be Intentional: Don't just let people move without telling you. Update your employee handbook. Require approval for relocation. It is not about controlling their lives; it is about protecting the business from surprise tax bills.