My understanding is that this has big tax implications (since presumably said low cost of living areas are outside of California). I would love to understand better what sorts of complications WFH bring to the table for those cases (and how they can be mitigated).
The company needs to do payroll in a different state and you, as an individual, now pay taxes in your state of residence which isn't where company HQ is.
From a tax perspective it's mostly no different than if they had a small office in that state.
For big companies, in particular, it's not that big a deal as they're probably using a payroll service like ADP anyway. There may be some paperwork--and certainly more so if other countries are involved.
You’re vastly underestimating the work of “setting up an office” in a new state. Every state has a bunch of paperwork, like setting up your company as a foreign corporation in that state. Then there is state licensing. Also every state has its own worker’s compensation requirements and some have other requirements too.
Your payroll provider generally tells you that you’re on your own for all that stuff.
For every additional state there is a ton of overhead.
I’ve had employees in California, Washington, and New York. It took two years to unwind Washington after the one employee there left, and it took a year and 20 hours of lawyer time to unwind New York, who was trying to charge us $5,000 as a penalty for missing paperwork we didn’t think we had to file (we ended up being right after paying the lawyer).
Payroll companies handle all the workers comp and payroll related duties for all different states and they do it for near nothing.
The only thing you are on your own for is tax filings and registration as a foreign entity. And that is only in some cases in some states. In most states, having a few remote employees is not enough to even trigger a filing requirement. In CA, which is probably one of the most draconian, we had to register as a foreign entity and then we have to file corporate taxes there and allocate taxes proportionally according to percentage of revenue that comes from CA, I believe.
And actually, they want your corporate income tax even if you don't have employees there, just because you sell to Californians. But they have had a hard time collecting for those that have no employees or other presence in the state.
> Payroll companies handle all the workers comp and payroll related duties for all different states and they do it for near nothing.
I know for a fact this is wrong. Payroll companies don’t do worker’s compensation in Washington because the state runs the insurance program. You have to register with the state.
The state runs most workers comp programs as far as I know. How is Washington any different than say California? I may have had to follow some one time instructions to initially setup a workers comp account in California, but I haven't touched it since. And my $50/month payroll service handles all of the payments and filings for me.
All 50 states have a different process. Many require you to get a private policy but some have state run funds.
As an example, I have to deal with my insurance agent annually for my worker’s compensation in California and then deal with Washington separately for their scheme.
I admit to having been naive on the issue. I know that bureaucracies are involved but it still seems as if at least the 90% case would be pretty cookie-cutter/repeatable even if there are a lot of steps and potential gotchas.
Unemployment insurance, family/medical leave, workers comp, and health insurance are all different by state. That can be a lot of overhead for the first employee in a new state, but then the second is trivial.
I had two different scenarios in mind: one happened to an acquaintance, where they negotiated a pay cut (because presumably the company doesn't want to pay Bay Area salary to a remote worker in a location in an area w/ lower salary base), and there was the question of taxes involving part of the year in one state and part in another (plus the math for RSUs and options, of which the person had vested both in both states).
The other scenario involves visa workers. The I-140 is predicated on not being able to find local candidates that match a criteria. More broadly, the H1-B visa grant pertains to foreigners being able to work in the US at all in the first place. I'd imagine that if you had everything setup to be remote from the beginning it'd probably be fine to keep things humming along, but I imagine that switching surely must pose some sort of logistic challenge?
Absolutely! In that long comment, mitchellh briefly talks about the impact of employing folks in different states on potential corporate tax.
Now imagine you ran one of the big billion+ USD revenue tech companies, and you're not talking about different states in the same country but a distributed workforce in many countries and the political pressures on taxation of e-commerce or similar business models involving intangible goods. One of the key arguments in many a tech company's tax/legal toolbox (usually for arguing they should pay taxes on one jurisdiction instead of another) is in which countries their engineering efforts reside and to what extent.
It's really no wonder that employment legal & finance wins out on totally flexible work arrangements in that situation, for better or worse. Politicians aren't taking any hostages in this context, see eg. France.
To provide an example from sufficient years back: I had to represent the stance of a past employer on compliance with Russian privacy laws to Roskomnadzor[1] in their HQ in Moscow. Through a carefully planted trick they tried to get us to commit to establish just the right kind of representation to be able to tax our revenue from Russian customers. In many countries, the narrative would've been "you have engineers here, you therefore build your products here, you should pay income tax here". Curiously, there isn't really obvious right or wrong in all this since the goods are intangible.
(Disclaimer: experience entirely from prior to my current employment at Google, I don't speak for Google in any way and have no insight into these matters at Google.)
> The company needs to do payroll in a different state and you, as an individual, now pay taxes in your state of residence which isn't where company HQ is.
This is not always true.
I'm remote. I pay my state and CA taxes for my CA based company even though I have never set foot in CA for this job.
Like others have said, check with an accountant, I have worked remotely for the past 11 years in NC, for companies in GA, CT and NY, but because I'm 100% remote, I only have to pay NC taxes. None of them ever had an office in NC
I confess I don't know what the laws are then. Presumably you don't pay both your state and CA taxes on your whole salary?
I confess I've never been in the position of being officially completely remote. I certainly don't pay taxes to the state where my company's HQ is but then I'm officially in an office in my state of residence. (And maybe the existence of that office would make a difference even if I weren't actually assigned there.)
I've also heard of stories of people getting in trouble for "moving residence" to Incline Village (Nevada) and doing taxes in Nevada while working in CA.
