By: Swathi Gandham | June 26, 2026
Remote and hybrid work have become a permanent part of today’s business environment. While employers benefit from greater flexibility and access to talent nationwide, many overlook the tax and compliance obligations that arise when employees work from different states.
Remote Employee May Create State Tax Obligations
Many businesses assume tax obligations only arise when they establish an office, warehouse, or other physical location in a state. However, a single remote employee may create a taxable presence, or “nexus,” triggering requirements such as:
- State tax registration
- Payroll tax withholding
- Unemployment tax accounts
- State income or franchise tax filings
- Compliance with state employment laws
Business Registration Requirements Are Often Missed
Many states require out-of-state businesses to register for payroll withholding and unemployment tax accounts in the applicable jurisdiction before beginning business activities within their borders. Employee activity alone may create registration obligations, even when the company has no physical office in that state.
State Enforecement Is Increasing
State tax agencies now use payroll records, unemployment filings, and information-sharing programs to identify non-compliant employers. Areas receiving increased scrutiny include:
- Payroll withholding
- Unemployment tax registrations
- Corporate income tax filings
- Franchise tax obligations
- Nexus compliance reviews
The Cost of Non-Compliance
Businesses that overlook remote workforce compliance may face:
- Back taxes
- Penalties and interest
- Additional filing requirements
- Increased audit exposure
- Costly corrective filings
Best Practices for Employers
To reduce risk, businesses should:
- Track employee work locations
- Review tax obligations when employees relocate
- Evaluate compliance before hiring in new states
- Conduct periodic nexus reviews
- Review unemployment tax accounts annually
- Consult qualified tax professionals
Final Thoughts
Remote work offers significant advantages, but it also creates multi-state tax challenges that employers cannot afford to ignore. Proactive compliance reviews can help businesses avoid costly penalties, reduce audit risk, and maintain operational flexibility as their workforce continues to evolve. For assistance in ensuring compliance with all state regulations, contact the trusted Chugh, LLP team.
