Rock legend Gene Simmons recently KISSED goodbye to California in a way no remote worker should ever copy. “I have finished”, he Told the New York Post in March. “There are earthquakes, fires and pandemics every year.”
How leaving California will save Simmons from “pandemics” is unclear, but he has another motive. He also told the New York Post that California had become “uninhabitable” because of the high taxes. Meanwhile, he listed his Beverly Hills estate for $ 22 million, raised the asking price to $ 25 million, and moved into a 12,000 square foot mansion on the Nevada side of Lake Tahoe.
I bet the demon, supposedly worth $ 400 million, has a new fan base: tax auditors. Their job would be a lot easier if everyone were as subtle as Simmons. Auditors would know exactly which high net worth individuals are trying to lower their tax bill by moving and therefore who is ripe for a residency audit.
You might not be Gene Simmons, but if you’ve worked remotely across state or country borders, or moved during the pandemic, you – and your employer – might as well. be targeted by revenue-hungry listeners.
If you’re working remotely, these are the three biggest tax mistakes you can make.
Ignore state and city tax laws
My company, Topia, wanted to know how many people had worked from ‘anywhere’ during COVID-19, so we asked 1,250 employees in the US and UK about this in our annual report. Adapt investigation. Twenty-eight percent of employees said they worked outside of their home state or country, but 40% had no idea of the tax implications.
What implications, you ask? If you’ve worked remotely in one or more U.S. states other than where your office is (or was), you may be required to pay payroll and income taxes in those locations. If, for example, you earn more than $ 3,500 somewhere in California but still consider yourself a Chicago resident, you are expected to pay state income tax on the money you earned in California.
The time and money thresholds for each state are different, as are your homework and paperwork. Learn about the tax laws in which you plan to work or hire professional help. If you move from a high tax jurisdiction like San Francisco to Boise, Idaho, you and your employer could have a lower tax burden – if you can document that you performed your job in Idaho. Otherwise, San Francisco and California will expect their taxes, and Idaho could too.
Work illegally abroad
Before the pandemic, digital nomads roamed the globe from place to place, taking photos of themselves on beaches while pretending to work on laptops. In fact, many of them broke immigration rules while documenting the evidence for all to see. Most checked the “vacation” or “tourism” box on their passport control forms and never told authorities they would work during the trip. Otherwise, host countries would expect taxes from the nomad and their employer (if they had one).
If you work for yourself and aren’t a multi-millionaire rockstar, the chances of having trouble telecommuting abroad are slim, as long as you don’t book a trip longer than 30 days. If you have a multinational employer, however, the chances of problems are higher. In the interest of your employer, contact your human resources team to determine what it will take to work legally at your destination.
Some countries have so-called “nomadic visas” to accommodate remote workers. But while the German nomadic visa covers self-employed and self-employed workers, it does not cover company employees. Your employer is expected to pay taxes. And if your finance department receives a surprise letter from German authorities demanding payment, you risk being fired for violating the terms of your employment contract.
Do not report your locations to HR
Many companies do not train employees to report their workplace to HR, even if they are traveling on business. Thus, the majority of remote work is unknown to HR and finance, meaning they cannot comply with withholding tax requirements.
In our Adapt survey, my team found that 93% of HR professionals are confident that they know where the majority of their employees work, and 78% are confident that their employees self-identify when working in another state or country. In fact, only a third of employees report all these days, and about a quarter report no days.
You might be reluctant to share your location. Some companies will adjust your salary down to the market rate if you permanently move from a high cost city like New York to a more affordable city like Knoxville, Tennessee. However, to avoid a situation where you are fired for breach of an employment contract and / or need a tax lawyer, report your location to HR. Tell them where you will be working and for how long.
Your business may have a legal entity in that state and be equipped to comply with payroll deductions and labor regulations. The concept of “asking for forgiveness rather than asking for permission” might fly with HR, but that won’t get you far with a tax auditor.
Don’t be a target
Don’t paint a bubble on the back like Gene Simmons. Don’t be a target for state tax auditors keen to generate income in a tough year. Don’t ruin your nomadic working holiday in France by being kicked out or accidentally creating a French entity for your business. Play with the tax rules and enjoy your freedom.
Steve Black is the Co-Founder and Chief Strategy Officer at Topia.