![]() ![]() ![]() To the extent such a treaty exists, it should provide guidance on both of these issues. Otherwise, the answer will be found in the foreign country’s tax laws.įor example, under the Model Income Tax Treaty published by the Organization for Economic Cooperation and Development (OECD), upon which many tax treaties are based, a company will be subject to tax in the foreign treaty-party country only if the employee’s presence in the country creates a “permanent establishment,” or “PE,” in that country. To answer these questions, the first source of relevant authority would be a bilateral tax treaty between the United States and the foreign country, if any. Whether the company be required to withhold and remit foreign income tax from the employee’s wages.Whether the employee’s presence in the foreign country creates an economic nexus between the company and the foreign country, sufficient for the foreign country to tax all or part of the company’s income.In considering a proposed international teleworking situation, there are two primary tax issues with which a company needs to concern itself: Accordingly, employer policy should allow for a case-by-case evaluation of any proposed international remote work and make clear that the employee will be responsible for bearing the economic burden to the extent the company is required to withhold and remit foreign income taxes on his or her wages, or foreign social security type payments. However, an international remote work situation can be even more complicated, requiring an employer to look at multiple levels of authority, from tax treaties to the foreign country’s domestic laws. International teleworking, similar to working across state lines, will involve a jurisdiction-specific tax analysis. For instance, in each case, an employer must also consider whether merely having an employee teleworking from a particular state obligates the employer to register to do business in that state or even potentially creates sufficient economic nexus for a corporate income or business franchise type tax to apply to some portion of the employer’s income.ĭo similar considerations apply to an employee working remotely in an international jurisdiction? įrom the employer’s perspective, permitting remote work across state lines may result in more than simply increased payroll tax compliance costs, from the withholding obligations that must be met in new states. This could arise in multiple situations, such as where an employee works part-time in the employer’s office in State A and part-time from home in State B, or where the employer’s home state has adopted a “convenience of the employer” test, which imposes income tax on remote-out-of-state employees where the employee is working for an office based in that state. For example, when it comes to the employee, there may be an impact on the employee’s take home pay if more than one state requires income tax withholding from the employee’s check. If an employee wants to work remotely from another state, where an employer does not currently conduct business, an employer must carefully consider the potential tax consequences for both the employee and the employer. employers should thus carefully consider the tax implications of allowing an employee to work in other jurisdictions, whether in another state where the employer does not otherwise have a taxable presence or even internationally.įrom a tax perspective, what should be considered in determining whether to allow employees to work remotely across state lines? Moving forward, however, many of these temporary reprieves have or will soon expire. During the pandemic, many jurisdictions enacted policies, whether formally or through informal guidance, to prevent employers from becoming entangled in additional tax obligations as a result of employees temporarily teleworking away from an employer’s physical office as a result of COVID-19 restrictions. One important employer-side piece of a teleworking policy is potential tax exposure. Given employee interest in continuing to telework, it is important for employers interested in offering remote work as a benefit to evaluate their policies now.
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