• Ban The Telecommuter Tax

Here’s a guest post from Nicole Belson Goluboff, Esq., a lawyer who writes extensively on the legal consequences of telework.  She’s the author of The Law of Telecommuting and Telecommuting for Lawyers, as well as numerous articles on telework. Her articles have appeared in The New York Times, The New York Law Journal, The National Law Journal, State Tax Notes, BNA’s Multistate Tax Report, The Practical Tax Lawyer, LegalNewsTV and FindLaw’s Legal Commentary, among other publications.

In its efforts to prepare both government agencies and the country as a whole for a severe outbreak of swine flu, the federal government is wisely encouraging telework:  Decentralizing workers can limit the spread of illness.  It can also help employers continue operating if large numbers of employees are absent from the office – either because they have the flu, are afraid of getting it, must care for a sick family member or must stay home with children whose schools have closed.

However, for telework to stem infection and sustain business operations as Washington would like, a significant tax barrier to the practice must be eliminated:  the telecommuter tax.

Because of a state tax rule known as the “convenience of the employer” rule, people who live and work in different states and decide, during the year, to spend some time telecommuting to their employers can be taxed twice on the wages they earn at home – once by their home states and then a second time by their employer’s state.

For example, say a resident of Connecticut works for a public relations firm in New York.  Her husband develops flu symptoms, and she decides to telecommute while he is sick.  Connecticut can tax her on the wages she earns in Connecticut.  Under the convenience of the employer rule – which New York maintains and enforces aggressively – New York can then tax those wages again:  It can force her to pretend that the days she spent working in Connecticut were days she spent working in New York and tax the Connecticut wages as if they were earned in New York.  Thus, the telecommuter may be double taxed on the income she earns at home.

Some states try to soften the blow for their telecommuting residents, giving them a credit for taxes they pay their employer’s state on the income they earn at home.  But this strategy does not eliminate the problem:   When the tax rate in the employer’s state is higher than the tax rate in the telecommuter’s state of residence, the telecommuter must pay the higher rate on the wages she earns at home.

The threat of being taxed twice or excessively for telecommuting is a compelling reason not to do it.  As a result, employers trying to encourage workers to practice teleworking now in case a public health crisis requires them to do so later may find it a tough sell.  Similarly, employers may find it hard to persuade employees who have flu symptoms to stay home to work.

Fortunately, some members of Congress are offering a solution:  The Telecommuter Tax Fairness Act (H.R. 2600).  This legislation would prohibit states from taxing the wages nonresidents earn when they are physically present in a different state.  It would make clear that physical presence means just that:  Days a nonresident works at home would be treated as home state days.

The Telecommuter Tax Fairness Act would cost the federal government nothing, and it has bi-partisan support.  Representatives Jim Himes (D-CT) and Frank Wolf (R-VA) introduced the bill in the House.  It has been co-sponsored by Representatives Rosa DeLauro (D-CT); Leonard Lance (R-NJ); Hank Johnson (D-GA);  John Sarbanes (D-MD); Melissa Bean (D-IL); Mark Kirk (R-IL); Gerald Connolly (D-VA); Glenn Nye (D-VA); James McGovern (D-MA); Raul Grijalva (D-AZ); Dennis Moore (D-KS) and Cathy McMorris Rodgers (R-WA).

Outside of Congress, the Telecommuter Tax Fairness Act has been endorsed by telework, transportation, taxpayer, homeowner and small business advocates.

As the Federal Communications Commission (FCC) develops the National Broadband Plan mandated by the American Recovery and Reinvestment Act, it, too, should urge quick enactment of the bill.  In seeking public comments regarding telework, the FCC specifically asked, what “regulations … need to be in place to allow government, businesses, and employees to quickly shift to telework effectively and economically in case of … outbreaks of disease, or other contingencies?”  One key rule that must be in place is telecommuter tax fairness.  By maximizing the number of Americans who can use broadband to telecommute, legislation requiring telecommuter tax fairness would help assure that the government’s investment in broadband is well spent.

The immediacy of the flu season and the potential for the H1N1 virus to resurge in a more virulent form calls for swift Congressional action on the Telecommuter Tax Fairness Act.  However, the legislation is an essential tool for meeting many other national priorities, as well.  By removing a significant obstacle to telework, the legislation can help:

• Americans who are out of work and need to expand the geographic scope of their job searches;
• Americans who have jobs and need to lower their commuting costs, conserve fuel and improve their work/life balance;
• Older Americans who have lost their pensions and must work longer than they expected even though their daily commute has become too strenuous;
• Disabled Americans – including veterans returning from Iraq and Afghanistan – who need to join the workforce but have limited mobility;
• Military spouses struggling to build or sustain a career when they must repeatedly relocate;
• Employers striving to reduce real estate, energy and other overhead costs and use the savings to preserve and create jobs;
• Employers seeking to broaden the geographic area from which they recruit while reducing recruitment costs;
• Employers trying to minimize turnover;
• Employers trying to increase productivity;
• Rural areas in need of new jobs;
• Communities burdened with heavy traffic congestion;
• Regions trying to reduce greenhouse gas emissions and air pollution; and
• Regions trying to contain the cost of maintaining, repairing and expanding transportation infrastructure.

The Telecommuter Tax Fairness Act is necessary to help assure telework can limit the impact of the swine flu.  At the same time, it would meaningfully strengthen America’s ability to manage other contingencies and to tap the economic, environmental, energy saving, work/life and transportation benefits of Internet-based work.   The time to enact this crucial measure is now.