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In our webcast, Teleworker tax implications for COVID-19 and beyond, which aired on July 28, 2020, we asked participants to respond to a series of polling questions about their current teleworker practices. More than 3,400 contributed their responses.

What we learned from our polling question results is that over half of the participants (more than 2,000) project they will continue to have a larger population of teleworkers after the COVID-19 crisis than they had before the start of the pandemic, anecdotally confirming that COVID-19 has likely accelerated a future upward trend in telework.

In general, and absent a specific relief provision, when an employee works full-time from home, personal income tax and income tax withholding apply in the home office location. Additionally, and frequently not considered, full-time telework is generally considered sufficient to trigger nexus for purposes of business taxes, such as sales and use and corporate income tax.

When we asked webcast participants if they have performed an analysis of the state and local businesses taxes that were triggered as a result of their teleworker arrangements, over 75% responded that they either have not, or are considering it.

Absent a specific exemption, working full-time from a home office will generally create nexus that gives rise to state corporate income, sales and use and other businesses taxes (localities may also impose business taxes). A limited number of states have provided nexus relief in connection with COVID-19, leaving businesses potentially exposed to costly audit assessments in jurisdictions where teleworkers are located.

Teleworker trends before, during and after COVID-19 polling results

Observations:

• 24% of responders had fewer than 500 employees and 76% had more than 500 employees.
• Businesses that had 20% to 40% of their workforce teleworking before COVID-19 experienced a slight increase during COVID-19 but plan to significantly increase the teleworker population after COVID-19.
• Businesses that had 50% or more of their workforce teleworking before COVID-19 had a significant increase during COVID-19, will scale back telework somewhat after COVID-19, but will still have significantly more teleworkers after COVID-19 than they had before the crisis.

Have businesses identified the business taxes that apply to their teleworkers (polling results)?

Observations:

• Most of the responders (77%) have not yet performed an analysis of the state and local business taxes that may apply in connection with their teleworkers.
• Absent a specific exemption, working full-time from a home office will generally create nexus that gives rise to state corporate income, sales and use and other businesses taxes (localities may also impose business taxes).
• Only a limited number of states have provided nexus relief in connection with COVID-19, leaving businesses potentially exposed to costly audit assessments in jurisdictions where teleworkers are located.

For more information

Read more about the tax implications of telework and the limited state and local COVID-19 relief provisions that apply in our COVID-19 state guide to payroll and employment tax.

To learn how we can assist you with a tax analysis of your teleworker arrangements see our slip sheet.

Download the slide deck version of our polling question results by clicking on the PDF file at the bottom of this Alert.

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EY Payroll News Flash - Ernst Young LLP polling results

EY Payroll News Flash - Slide deck