Benefits Notes |

Employee benefits are an important part of every employees' total compensation package. The continuously evolving landscape in the areas of health care reform, retirement plan design, and executive compensation makes it difficult for employee benefits professionals to keep up with relevant developments. The employee benefits attorneys at Stinson Leonard Street provide human resources professionals, plan fiduciaries, actuaries, accountants, and others in the industry with practical and cost-effective assistance as they navigate through the complex laws, regulations and guidance that govern employee benefits plans. This blog highlights key developments in the employee benefits field and items of interest to our clients. Our Bloggers →

Benefits Notes Post

Beware Unexpected Tax Consequences from Telecommuting

Mary worked for IT, Inc. at its headquarters in Maryland. Her husband moved to New Jersey for his work and Mary moved with him. Mary continued to work for IT, Inc., writing computer code from her home in New Jersey and uploading her work to her co-workers in Maryland via the Internet. IT, Inc. withheld New Jersey income taxes from her pay and filed appropriate employment tax returns in New Jersey.

The problem? By employing one telecommuter in New Jersey, IT, Inc. is now doing business in New Jersey and is liable for New Jersey franchise (income) taxes. That was the decision of the New Jersey Superior Court in Telebright Corporation, Inc. v. Director, New Jersey Division of Taxation.

Most employers with a single telecommuting employee in a state do not expect to have to pay corporate income taxes to that state – but they might be required to do so. They might also be required to pay unemployment compensation and workers compensation in the state where the employee is located and to follow the employment laws of that state with respect to that employee. The compensation and benefits twist: In addition to following the correct payroll and wage and hour requirements of the state where the employee lives, the employer should also check that the insurers of any insured benefit plans (e.g., life, health, dental, long term disability, etc.) know that there is an employee in another state and that state insurance laws allow the insurer to cover that employee.

Employers contemplating telecommuting arrangements with employees in other states should think through all the ramifications before agreeing to the relationship. They should think even harder if the employee is in another country. In some cases, the benefits of a single employee’s services may not outweigh the compliance and tax headaches that those services carry with them.