Enabling remote work was simple. Managing its impact on payroll tax compliance is far from it.
We are going through a once-in-a-generation change in the way we work. Increased instance of remote work is firmly here to stay. This new way of working has led to expanded geographic footprint for companies, increased reporting requirements, and significantly increased related compliance risk.
Expanding geographic footprint. Increased reporting burdens. New tax liabilities. Added compliance risk.
As the way people work undergoes seismic changes, so do expectations on tax and payroll departments. In a new-reality work environment that is increasingly flexible and remote, many employers are struggling to stay compliant with tax regulations in all the areas where they operate.
The chief emerging challenge is tracking a mobile workforce of many shapes and sizes across state and even national lines. Since the onset of the pandemic, large numbers of employees have untethered from physical workplaces and scattered across jurisdictions. To comply with payroll tax withholding and reporting rules, employers must know where their people are working. But doing so accurately and at scale is a huge undertaking given the patchwork of disparate and confusing rules governing state payroll tax withholding.
At the same time, the regulatory environment is heating up. State remote tax requirements continue to expand, but not in a standardized way, adding complexity and risk to payroll tax processes. Scrutiny is increasing, too. State authorities are fighting over tax income from employees who are generating revenue in their jurisdiction, but whose employers are based elsewhere. Pressure is mounting for organizations to withhold and report payroll taxes based not on assumption, but on the true location of their people—monthly, weekly, or even hourly.
The stakes for complying with remote and multistate workforce tax rules are high. Failure to withhold appropriately could result in significant tax exposure, including principal, penalties, and interest. And the problems only compound from there. Impacts could even trickle down to the employee level, with remote and multistate workers encountering roadblocks when filing personal income tax returns.
To examine how today’s employers are navigating pressing nonresident taxation issues, the KPMG Employment Tax practice and the American Payroll Association surveyed 610 tax and payroll professionals representing a range of industries and organization types and sizes. Concluded in October 2021, the survey assesses current attitudes and actions on remote and multistate payroll reporting challenges, focusing on the compliance side of the issue.
This report draws on the survey findings to provide a useful snapshot of key trends on this hot topic in employment tax compliance. As year-end approaches, we hope it shares timely data and insights that can help you measure your progress and drive better tax outcomes for your business and workforce.