As a startup, you probably know the benefits of hiring the best employees, and sometimes this means hiring across state lines and even international boundaries.
Hiring remote workers is win-win for both of you – the employee can continue to work in their hometown, and you get the most qualified team members.
But employing remote workers does come with its own special needs. In this article we look at what you need to know about taxes for remote workers.
Guidelines for remote workers outside your state
In this instance, we are referring to people you employ, pay a salary or hourly wage to, may provide benefits for, and pay their payroll taxes who live outside your state but in the United States.
Generally speaking, when you employ remote employees in the United States, you will abide by the tax laws in the state where the employee works.
For example, if your company is in New York, and your employee lives in Florida, you will pay taxes for that employee using Florida's tax laws.
You will want to register with the correct tax agency in each state where you have at least one person working because you pay state withholding taxes there.
There are some states, however, that require employees to be taxed based on their employer's location. This causes an issue for remote workers because they then are subject to income tax for both the state they live in and the one where their employer is located.
These states include Delaware, Nebraska, New Jersey, New York, and Pennsylvania.
States vary greatly across the board, so you do want to make sure to check with each state where you employee a worker.
Guidelines for remote workers in your own state
For those employees who work in the same state your company is registered in but live in another city, you withhold your own state's payroll taxes.
You may also need to withhold local income tax, so do check to see if you need to do that.
If your employee works in your state but lives in another state, you will still withhold the payroll taxes in your state. This is because you withhold in the state the employee does the work in.
Guidelines for independent contractors
While many of your remote workers may be full or part time employees, others may be independent contractors.
For these workers, you pay the contractor directly, and you don't withhold any payroll taxes. Independent workers are responsible for handling their own taxes.
What you will need to do is send them a 1099-MISC form at the end of the year if you've paid them more than $600.
Do be careful here, though, as there are federal and state laws that explain the difference between employees and independent contractors.
If you misclassify and employee, you may incur some hefty penalties.
For example, on the first of January 2020, California makes it harder for small businesses like yours to classify workers as contractors.
If this all sounds incredibly challenging to you, you can always seek help from an outsourced company who can handle all of your human resources and payroll needs. They can manage your taxes as well.
You'll find it can be well worth it to pay someone else to take care of this for you so you can spend your time growing your business.
State and federal income taxes, unemployment taxes, and other withholding taxes can be someone else's responsibility, so you don't have to untangle multiple filing jurisdictions.
An outsourced company can take all the guess work out of it for you. Not only will they handle your payroll, but they'll handle taxes in each state and your ongoing and end of year filings.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.
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