Reposted with permission from Ariel Joudai.
You and your valued employees who work far from headquarters can encounter two administrative issues that possibly neither of you contemplated when the remote-working arrangement was agreed to:
1. What happens to health benefits if there are no providers in your plan’s network where the remote employee has moved, and
2. When employees move to another state, which taxing jurisdiction has a claim on them?
Here are points to consider and some alternatives.
Remote Employee Health Benefits
When it comes to health benefits for remote employees, you have a few options, but their practicality depends on your circumstances. Suppose, for example, that a remote worker lives too far from the geographic area covered by the preferred providers in your health plan’s network to make routine visits. He or she could, however, make the trip if a serious condition required a physical examination.
The simplest approach in that situation could be to arrange for the employee to use telemedicine services with in-network providers for most needs. In-person would be available when necessary.
But that may not always be a practical option, particularly if you have multiple employees who are working remotely and are too far away from your plan’s provider network. In that case, you may need to ask your health plan administrator if a special arrangement can be made with a primary care group in close proximity to where remote employees are working. Be aware that such a customized arrangement, if even possible, could carry significant extra costs.
If you’re expecting a big increase in the proportion of your staff that works remotely, another possibility would be to switch your health plan provider to one that operates on a national scale. The downside to that option is it could take a year or more to fully implement, and not many plans have that capacity and aren’t available in all areas.
Another possibility would be to pay remote employees a stipend to cover the cost of securing an individual health policy. That could be expensive, depending on such factors as:
- The cost of the coverage,
- Whether it’s necessary to keep the employee on your regular health plan for Affordable Care Act compliance purposes, and
- Whether the arrangement, which may look like a “raise,” could create pressure from other employees to be treated “fairly” by also receiving the equivalent of the stipend.
While that third possibility isn’t probably one you would encounter, it’s worth keeping in the back of your mind.
The ICHRA Option
Finally, if you’re willing to zero-base your entire health benefit strategy, you might consider an Individual Coverage Health Reimbursement Arrangement (ICHRA). Instead of having your own company health plan to cover employees, with an ICHRA, you simply reimburse all employees eligible for health benefits for their cost of securing coverage on their own.
ICHRAs have been available only since 2020 and are subject to strict IRS regulations to assure compliance with the Affordable Care Act. You probably wouldn’t switch to an ICHRA just to support a few employees working remotely. But if an ICHRA would make sense for other reasons, it could support your effort to enable remote workers to remain covered.
Battle of the States
What about the state payroll tax obligations of out-of-state remote employees? This issue has been a thorn in the side of many employers since pre-COVID-19 days. Rules vary from state to state, but the growth of out-of-state remote working arrangements has brought it home for the first time to some employers.
Employees usually receive a tax credit in their state for taxes paid to another state and thus don’t face double taxation. But this can still be a nuisance for employers to administer and for employees who must file tax returns in two states. Plus, not all states allow for that offset.
One general principle that six states, including New York, operate under is called the “convenience rule.” An example might be an employee who works for a company whose office is in New York but who telecommutes from New Jersey, for the convenience of the employer. New York considers the days the employee telecommuted from New Jersey to be days worked in New York. The only way around that would be for the employer to demonstrate a business necessity for the employee to be working from New Jersey and establish a “bona fide” satellite office there.
Other states that operate under the convenience rule, according to the Tax Foundation, are Arkansas, Connecticut, Delaware, Nebraska and Pennsylvania. Massachusetts temporarily adopted that policy when the pandemic was in full force. Neighboring New Hampshire challenged it in a case that made it to the U.S. Supreme Court, but was shot down.
The bottom line for employers who are either putting together a remote work policy or dealing with the implications of having already given employees that opportunity is the need for clarity. Employees should know how their status as remote workers affects their health benefits and the payroll tax implications that go with that status. Given the technical nature of the subject, be sure to consult with your accounting professional as you weigh the pros and cons.
Ariel Joudai, CPA is a highly skilled New York, NY CPA firm offering innovative accounting services and tax planning solutions for business owners. Our mission is to remove financial obstacles and skillfully manage your tax obligations to improve your business and your bottom line.
For more information, visit aajcpa.com