Tax Incentives with Remote Workers

Published: November 30, 2022 by George Francis

remote workers create challenges for claiming local tax incentives

The rise of the hybrid workforce and remote workers has generally been positive for both employee and employer. States and localities have also experienced benefits from employees living and working in new areas. However, the fluidity of where workers are located can create headaches for employers applying for local tax incentives. On the other hand, some states are offering new benefits designed to attract remote workers to their areas. Employers should fully understand the impact of a hybrid workforce model for the local tax incentives they may forfeit and new benefits they can claim.

Benefits of Remote Workers

The ability to work remotely allows greater flexibility for employees to improve their work/life balance, leading to greater overall satisfaction. It provides the opportunity to locate near family or in lower cost or rural areas regardless of where the employer operates. For businesses, the ability to fill open positions with people from outside their traditional geographic restrictions has made recruitment easier. Likewise, it has become a factor in corporate real estate considerations due to savings for smaller office spaces.

Some states have seen economic benefits from remote employees and are actively recruiting more. Adding solid wage earners and their families to their community is a win-win. Typically, these people buy houses and spend money at local businesses, but don’t stress the local infrastructure or school districts in the way a new business facility may. States including Vermont, Indiana and Hawaii are offering financial inducements to recruit remote workers to their area.

Despite these positives, there is an important downside for employers to consider: Relocating your workforce may forfeit local job credits and incentives.

Requirements for Local Job Credits and Incentives

Businesses have become very adept at securing local tax credits and financial incentives related to their facility decisions. However, the increase in remote work has created problems for eligibility of these same benefits. Incentive programs by nature are intended to entice businesses to increase employment and investments in a particular state or jurisdiction. Most incentive program regulations specifically require an employee works within the state, and often requires the majority of their work be performed at the designated local facility. For this reason, tracking where your employees work is essential for claiming these tax credits, but too much remote work will negatively impact eligibility.

The Texas Enterprise Zone Program provides a refund of sales tax driven by the number of jobs created at a qualified facility. Eligible employees are those who meet a certain salary level and annual hours threshold. A qualified employee must also “perform at least 50 percent of the person’s service for the business at the qualified business site.” If your remote worker lives in another state, the likelihood of them conducting work onsite 2 weeks of every monthly may not be realistic.

Another example is the Georgia Jobs Tax Credit. This program provides tax credits for net new jobs created. The credit amount varies depending on the county or census tract in which the job growth occurs, so calculating new jobs is hyper-specific to the location of the facility. Generally, remote workers would be excluded from the calculation of these jobs credits. Adding to the specific Georgia issue are programs like Savannah’s “Technology Workforce Incentive,” which reimburses individual moving expenses up to $2,000 for qualified technology workers currently located outside of Chatham County to relocate within the county. Employees who seek the best possible remote work location for themselves may conflict with their employers’ financial decision to operate in a location with tax credits like these.

New Incentives for Remote Work

Georgia recognized the issue of remote work and added a tweak to their regulations, allowing “telecommuter employee jobs” to qualify. The jobs still must meet all other requirements, but during 2020 and 2021, a newly hired remote worker or an incumbent employee who has started to work from home due to the COVID-19 pandemic may be counted as a qualified job for the program. This temporary fix delayed the issue, but it could return.

Colorado has also embraced the remote worker situation in their Job Growth Incentive Tax Credit. Under this program businesses fostering employment in rural or distressed areas can claim bonus tax credits of up to $5,000 per job created and sited in eligible rural areas. Unfortunately, this program somewhat contradicts the Colorado Enterprise Zone Tax Credit which provides a tax credit of up to $4,100 per eligible new job created. Under the Enterprise Zone program, eligible employees must physically work at the qualified facility for at least 20 hours every week.

Other cities and states looking to attract remote workers include:

  • Greensburg, Indiana: Offering $5,000 to newcomers
  • Lewisburg, West Virginia: Total Incentive Value = $20,000
  • Stillwater, Oklahoma: Total Incentive Value = $7,500
  • Augusta, Maine: Total Incentive Value = $15,660
  • Montpelier, Vermont: Total Incentive Value = $15,000
  • Rutherford County, Tennessee: Total Incentive Value = $10,000
  • Honolulu, Hawaii: Total Incentive Value = $2,500
  • Juneau, Alaska: Total Incentive = $3,000

Managing Tax Credits and Incentives with Remote Workers

The rise of the remote worker phenomenon is overall a boon to both employee and employer. However, there are financial considerations employers should consider. When evaluating a tax incentive, employers will need to factor in the make-up of their work force. How many employees will be onsite? How does an employer count remote or hybrid workers? How is the percentage of time an employee is onsite vs. remote tracked? If a remote workforce is implemented, do incentives previously earned need to be returned? How does a temporary shift affect eligibility? All these and many more questions should be carefully considered when drafting economic development agreements or committing to a new facility. To best manage credits and incentives related to a remote workforce, employers can partner with Experian Employer Services tax experts who track these local programs to give a better picture of the best path forward.

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