Important Considerations when hiring Out of State (Remote) Employees and Independent Contractors.

 

The flexibility and convenience of remote working has led many companies to seek talent with W2 employees and independent contractors in other states. Many states will require you to register in that state if you have an employee or independent contractor working there. This means:

 

Obtaining a license to do business in that state. This would require your company to have an address in that state to receive correspondence from the state on tax and license requirements. Many companies hire a “licensed agent” to handle this. A licensed agent typically costs $150 per year to maintain your license in that state in addition to any applicable state fees.

Independent Contractors: Some states will require you to withhold state tax on independent contractors. Form 1099 was previously filed electronically without state registration, but in 2020 some states are requiring you to register and pay tax in the state of residence of your independent contractor. Hiring contractors all over the US could mean filing and registering in all those states.

Income tax and sales tax filings. If you are registered in another state, you will be required to allocate a portion of your revenue to the state and file a tax return. Your company will also be subject to any sales tax requirements of that state.

Accounting & Tax Fees: Your Tax firm will likely charge an increased fee for each state that requires a tax return filing. There is increased complexity in determining how much revenue is associated with each state and additional expenses may be incurred to track this.

It is important to weigh the cost/benefit of hiring out of state employees.

 

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