Risk

How Remote Workers Can Affect Your Tax Credits and Compliance

Spark Team

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Thanks to the ADP Tax Credits Team for this article.

Adapting to hiring trends for remote and hybrid work is crucial for staying competitive in today's dynamic job market. Organizations increasingly embrace flexible work models to attract top talent from diverse geographic locations. This shift requires a focus on technology and collaboration tools that facilitate seamless communication and productivity.

Some companies are also prioritizing employee well-being by offering remote work stipends (special incentives and cash payments), mental health support and wellness programs. By investing in these areas, businesses can help create a supportive environment that enhances job satisfaction and retention.

In fact, according to ADP Research*, "more than half (52%) of workers say they would accept a pay cut to guarantee that they could work remotely only or agree to split their time between home and office."

Creating opportunities to manage remote workforces better

With the growing number of companies embracing various remote and hybrid workforce arrangements, there are a few strategies to help ensure effective management, which may include:

Regular virtual check-ins

Schedule consistent one-on-one and team meetings to maintain communication, provide feedback and address any concerns.

Advanced collaboration tools

Invest in tools to facilitate seamless communication and collaboration, which can bridge the gap between remote and in-office employees.

Clear communications channels

Establish clear protocols for communication, include preferred channels for different types of messages such as email for formal communication and instant messaging for quick questions.

Professional development opportunities

Offer training and development programs designed for remote employees to help them grow and feel valued.

Recognition and appreciation

Regularly acknowledge and celebrate the achievements of remote and hybrid workers to maintain morale and motivation.

By adopting strategies like these, and others, businesses can help to create a more seamless work environment for their remote and onsite workforces alike. Additionally, maximizing remote worker engagement can help businesses identify new opportunities to secure additional tax savings.

Tax and compliance considerations supporting a remote workforce

As businesses embrace and implement the concepts of remote and hybrid work arrangements, additional tax compliance needs should be given consideration. In taxation, the concept of nexus refers to the connection between a business and a state that requires the business to collect and remit income, sales and use and employment taxes, for example, in that state.

Nexus can be established through a physical presence, including a storefront, warehouse or employee. It can also be established through economic activity, such as selling goods and or services exceeding a certain threshold even without a physical presence. This latter concept has gained prominence after 17-494 South Dakota v. Wayfair, Inc. (06/21/2018).

To better assess and tackle the nexus challenge, your human resources and tax team should be considering some of the following action items:

• Define processes that encourage a timely and comprehensive understanding of nexus rules including both physical and economic nexus thresholds.
• Implement policies and procedures for better tracking employee locations to ensure proper compliance is maintained for all employees, including those on remote and hybrid work arrangements.
• Adopt technologies that can facilitate tax compliance needs as related to sales, transactions and employee locations.

Each state has its rules for determining nexus, which can include sales volume, transaction count and other criteria. With the physical presence of employees, businesses must withhold state income taxes for payroll based on where employees are physically working, which may create new administrative responsibilities and compliance challenges. Additionally, businesses may lose some of their safe harbor protections under federal laws such as Public Law 86-272, which shields companies from certain state income taxes as a remote employee's presence could negate some of those protections.

Businesses must stay updated on these regulations to help ensure compliance. Managing state nexus effectively is crucial for companies to remain compliant; do this by understanding the nexus laws, tracking employee locations, and planning for business growth.

State legislative trends embracing remote and hybrid workers

State tax incentives for remote and hybrid employees have become increasingly relevant as work arrangements evolve. Many states are adapting their tax policies to attract businesses and accommodate the growing remote workforce. These incentives often include tax credits for employers who hire remote workers, particularly in underserved or rural areas, and adjustments to payroll tax requirements based on where employees reside and work.

Additionally, some states offer grants or deductions to maintain hybrid work models, which can reduce urban congestion and promote regional economic development. Employers must stay informed about these evolving policies to maximize benefits and work to ensure compliance with state regulations.

Some states have introduced tax credits and incentives to attract remote and hybrid workers or support businesses employing them. For example:

• Colorado has the Job Growth Incentive Tax Credit (JGITC) which recognizes remote and hybrid workers as part of its eligibility criteria.
• Georgia offers tax credits for businesses that create jobs, including remote positions, under its Job Tax Credit programs.
• Indiana offers the Economic Development for Growing Economy (EDGE) program, which provides tax credits for job creation, including remote positions.
• North Carolina includes remote employees in its Job Development Investment Grant (JDIG) which encourages businesses to expand their workforce.
• South Carolina is considering legislation (HB Bill 4087) to extend job creation credits to remote employees involved in headquarters-related functions.
• Tennessee's Rural Economic Opportunity Act provides incentives for businesses employing remote workers, particularly in rural areas.
• Wisconsin updated its Business Tax Credit (BDTC) in 2024 to include hybrid and remote workers, aligning with automation trends and addressing skilled labor shortages.

Best practices for keeping up to date with changing tax laws and regulations

Monitoring legislative changes for the remote and hybrid workforce is essential for maintaining compliance and leveraging new opportunities. Businesses can stay informed by:

• Subscribing to various newsletters, legal updates, and government publications while considering implementing software solutions that track legislative changes, and developing relationships with legal and tax advisors that share insights and best practices.
• Using technology and automation that track legislative changes and provide data analytics to assess the impact of such changes on their organization.
• Developing relationships with legal and tax advisors who share insights and best practices.

Lastly, internal communication and training is essential to help ensure human resources and compliance teams are aware of both operational and legislative updates and requirements.

As businesses embrace various remote and hybrid workforce strategies, they can seek additional insight on opportunities for tax credits and incentives from current legislation by visiting the ADP employment tax credits page.

_{*ADPRI People at Work Survey Report, 2022}