Remote workers are no longer new to the business world or to the governmental powers that assess taxes based on the location of the employee, or the location of the employer. At this juncture, governmental authorities are moving slowly and many wonder if, within the US, the state governments will come together to form some sort of structure that applies governmental code to remote workers.
Many times, an employee is protected under employment laws of the state in which they are physically doing the work. This means that if someone living in California is working remotely for a company located in Illinois, they may still be covered under California labor laws. However, situations can arise where an employee can file claims against their employer using the laws of the company’s location. It’s important that you and your employer understand the laws of the state in which you physically live.
There are two forms of taxation that are important here, and they often muddy the waters around remote workers and compliance. The business location – in this example Illinois – means that the business employment tax is based on the tax standards for Illinois. In the case where there are local minimum wage laws, such as a minimum wage law in Chicago that is higher than the rest of the state, the employer must pay the higher wage if it or the employee is working or located in Chicago, but maybe not if they are located elsewhere.
The second part of this is which states the employee may have to pay taxes. Income tax is often based on the state in which you live, but may also depend on where you work, or where the company is located. There can be some confusion, but if you are a resident of California and you work remotely for a company in Illinois you will pay income tax to California. That is different from remote workers who live in foreign countries where they may have to pay taxes in both the US and their Home country. You should consult with an accountant about any tax issues when preparing your tax return, or let a CPA prepare your return.
It is possible that state governments will eventually try to seek taxation from remote workers based on their state of residence (California) and their place of employment (Illinois.) – That hurdle will be down the road.
Other services that employees may be entitled to, and which are affected based on your residence or the location of the employer include:
These benefits may depend on your employer’s location. Therefore, remote workers may be covered by the employment laws of the location of their work – their employer’s location.
That is important because the maximum weekly unemployment benefit in Illinois is different from the maximum weekly unemployment benefit in California.
As you can see, there are a lot of gray areas when it comes to employment law and remote workers. If you are a remote worker and employed in Illinois you should contact an employment lawyer to understand your rights even if you are an employee who lives outside the state of Illinois, and an accountant for any tax questions.
Goldman & Ehrlich is an employment law firm that serves Chicago and the state of Illinois. Reach out to our team to discover your rights and options for any employment issue within the state of Illinois.