Who could have imagined a year like 2020? It feels like the entire world has been turned on its head. Among those lucky enough to still have jobs, many are now remote teleworking, and who knows if any of those positions will ever be office-based again. This has both employers and employees wondering just what the future holds.
The COVID-19 pandemic also brings up some thorny tax questions as we move into tax season. Both employers and employees need to understand the ramifications of this unusual year. Since remote work allows employees to maintain a home office from basically anywhere with a computer, phone, and internet connection, what happens if the worker changes states? What if they decide to take a remote job from a foreign country?
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Employers and employees are affected differently
There are some benefits that both employers and employees enjoy during these uncertain times. For employers, particularly large organizations with thousands of employees, your operating expenses have probably dropped significantly. Remember those huge, costly campuses you used to operate in multiple states or countries? That may not even be necessary in the future.
Employees may have taken this opportunity to move to a cool ski town, closer to family, or maybe to telework from Romania visa-free for a year. It’s an exciting time with many possibilities, but it also opens doors to many accounting and tax problems. Both employees and employers will greatly benefit from consulting a tax advisor.
What Employers Need to Know
Many employers confronting the “new normal” have staff that transitioned to remote work. You may have hired some employees in other states than where you’re based and you may have made the hard decision to furlough some folks, as well. There are many things you will need to know that make 2020 a tax year unlike any before.
Now more than ever, it’s critical to ensure you’re following tax and employment law compliance obligations which may be quite different than 2019. A Certified Public Accountant (CPA) will prove invaluable as you navigate the intricacies of changing tax laws.
Don’t let your employees scatter without knowing the facts
Business owners and managers need to do some research before loosely allowing employees to move about the country or the world. Tax laws in your company’s home state may differ greatly from those in the employee’s new state. If you have employees maintaining home offices in other jurisdictions, it’s a good idea to do some business accounting investigation and make sure you’re legally covered.
A general rule is that you must register to do business in those jurisdictions and comply with relevant employment laws. If you’re a business owner who has let your employees move to other jurisdictions, take some time to review whether the employees are in compliance with that jurisdiction’s laws. This includes not just the 50 U.S. states, but also other countries that have been offering deals to telecommuters to lure them over during the pandemic.
What are some potential liabilities?
Depending on the jurisdiction, employers could be subject to state income taxes, gross receipts taxes, and sales/use taxes. Tax requirements imposed at the city or county level could also become a factor. Of course, this doesn’t take into account the laws in other countries, which are too numerous to mention here, but you get the idea. A search engine is definitely your friend, and always confirm any information with a tax professional.
To the IRS, paid leave is still pay
The Families First Coronavirus Response Act (FFCRA) was an act of Congress designed to mitigate the impacts of the pandemic. This act provides American workers affected by this pandemic 14 days of paid leave, free COVID-19 testing, and more funds for food stamps. However, it’s important to note that the paid leave is subject to taxes for employees, and this must be included in the IRS Form W-2 wages declared at year’s end.
More on FFCRA
Employers don’t have to pay social security tax on FFCRA leave wages and they can also claim refundable tax credits on wages paid out through the program, but there are some considerations. For example, if you reduced your employment tax deposits to claim FFCRA tax credits, you must show these credits on the quarterly IRS Form 941 or the annual Form 944. This rule also applies if you received an advance payment of tax credits through the program.
The CARES Act
The Coronavirus Aid, Relief, and Economic Security (CARES) Act permits eligible employers to claim an Employee Retention Credit of 50 percent of up to $10,000 in wages paid to each employee and defer social security taxes on wages paid out between March 27 and December 31, 2020. This also applies if your company took out Paycheck Protection Program (PPP) loans.
What Employees Need to Know
As an employee, if your normal work routine was altered during the pandemic, you will find 2020 to be a very different tax year.
Sorry, no deductions for telecommuting
One important thing to keep in mind is that even if your employer makes you telework during the pandemic, home office expenses aren’t currently deductible. According to the IRS, self-employed taxpayers and independent contractors may claim a home-office deduction, but the Tax Cuts and Jobs Act suspended business use of the deduction from 2018-2025, so if you receive a paycheck or W-2 exclusively from an employer, you’re aren’t eligible for the deduction, no matter where you work.
Unemployment may be taxable
Authorized by the CARES Act, you may find that taxable benefits include special unemployment compensation. These taxable benefits include the CARES special unemployment benefits. However, you may be eligible to have 10 percent of your benefits withheld to cover tax liability. To take advantage of this, complete Form W4-V (voluntary withholding request) and deliver it to the agency that pays your benefits.
Digital nomads may pay more
A potential pitfall to moving around is that remote workers may find themselves paying income taxes to multiple states on the same earned income. This is another excellent reason to speak with a tax professional as soon as possible.
Filing Tax Returns is Difficult, Especially for 2020. Contact LLB to Ensure Your Business’s Taxes Are Done Correctly
Every year is a good one to consult a tax advisor, but probably none more so than in tax year 2020. There are many additional details employers and employees should know for this pandemic-influenced year, so please contact us so we can help you navigate the intricacies and save you the headache of discovering mistakes too late in the game.
