Working from home some or all of the time has become commonplace and seems likely to continue regardless of what happens with the COVID-19 pandemic. New ways of working require new ways of handling tax withholding. Employers may need to withhold at multiple locations for some employees. Employers should consider implementing internal policies to blunt future tax audits. Employers will also need to find new ways to communicate about tax issues with employees no longer working full time in the office.
Back in 2020, the assumption was that work-from-home would be short-lived. Consequently, some, but not all, taxing authorities permitted employers to continue to withhold tax exclusively at the workplace location even for employees working remotely in another jurisdiction. These temporary safe harbors for withholding have been, or shortly will be, terminated. As a result, employers are at risk if they do not withhold taxes for the taxing localities in which their employees actually work.