OK Resolves the Issue: Who Gets the Taxes When an Employee Telecommutes?

Telecommuting and taxes, taxes and telecommuting. I get questions every day from payroll professionals about withholding state taxes when an employee telecommutes from outside the state.  Do you withhold for the state where the work is sent (the employer state) or where the employee is performing the work (where his or her chair meets his or her backside, to put it crudely).  Several states have what are called telecommuter laws that rely on the so-called “convenience of the employer” laws. These include New York, Delaware, Pennsylvania and Nebraska. It depends on why the employee is telecommuting. If the employee telecommutes out of “employer necessity” then you take the taxes of where the work is performed.  But this is not so easy in New York. Meeting that state’s standards of employer necessity is virtually impossible so you may have to tax the employee twice, once for New York where the employer is located and once for the home state.  This is especially true if the state is located “adjacent to” New York.

But fortunately for payroll professionals Oklahoma has taken the logical approach and confirmed that an employee who moved out of Oklahoma but still works for the same employer by telecommuting is not subject Oklahoma nonresident income tax because the salaries, wages and commissions are for work performed outside of Oklahoma and the employee derives no income from sources within the state of Oklahoma.  Accordingly the employer does not withholding Oklahoma state income tax from the wages.  If only all states were as easy and as logical.

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