A Practitioner's Guide to the Taxation of Telecommuting

Abstract

With the advent of faster internet connections and cheaper, more powerful computer equipment, telecommuting has developed into a viable and widely used work arrangement. In many cases, taxpayers telecommute from states outside the state in which their employers are located.

The majority of states apportion a taxpayer’s employment income based on where the taxpayer performs his or her services. A minority of states use the convenience of the employer test, under which in almost all cases telecommuter’s income is apportioned entirely to the state in which the taxpayer’s employer is located.

The application of the convenience of the employer test can lead to double taxation where the employer’s state applies the test and the state from which the employee is telecommuting does not. A number of solutions to this problem have been suggested, including a federal law prohibiting the use of the convenience of the employer test.

Keywords: Telecommuting, Tax, Convenience of the employer test