Remote Work Appeals to Employees, Raises Tax Issues for Employers

Remote work is here to stay. Advocates continue to debate the productivity of working remotely, but research consistently highlights an uptick in employee satisfaction due to increased flexibility and work-life balance.

Employers are also increasingly embracing hybrid models that blend office time and remote work. In this evolving landscape, the extent to which businesses, governments and employees adapt remains a key question. According to Pew Research, nearly 14% of employable adults-about 22 million people-work from home full time. Although this number is down from its pandemic peak, it is still higher than prepandemic trends. And 43% of those who can work remotely do so in a hybrid model, Pew says, with 71% of those saying remote work helps balance work and personal life.

Related: State and Local Tax Considerations of Remote Work Arrangements

The response among companies varies widely. Some, including Boeing and UPS, have called their employees back to the office five days a week. Others are abandoning their office spaces altogether: The retailer REI built a new Seattle headquarters only to sell the never-used space to Facebook parent company Meta in 2020 in favor of remote work.

The prevailing trend, however, lies in hybrid models, with companies offering varying degrees of flexibility in terms of in-office and remote work. As employers pivot their business and management strategies to enhance productivity, the workforce is embracing novel norms of work-life balance. This dynamic evolution reflects the ongoing adjustments occurring in national, state and local workforces.

Remote Work and Taxes

Policymakers also wrestle with questions about how remote work affects taxes. Tax systems nationwide are dependent on income, employment, sales and commercial real estate taxes, among others. There are enough remote work jobs to have a sizable impact on government revenue and public goods and services, especially where income taxes represent a large percentage of government revenue.

As the workforce shifts, governments must also practice flexibility in terms of how they generate revenue. The response by governments differs considerably. Many states and cities have created incentive programs designed to support remote workers. Maine provides grants to attract remote workers, and Tulsa, Okla., offers a direct grant of $10,000 to attract new residents who work remotely. Other places try to lure workers from the suburbs back to downtown offices for a variety of reasons. For instance, local policymakers in Washington, D.C., argue that the lack of federal workers returning to offices across the city strains public transportation and city sales tax revenues.

States and localities must weigh revenue impacts from personal income taxes, employment taxes, general business and corporate taxes, and personal property taxes. Often, the tax implications depend on where the employee is physically located when performing the work, though definitions may vary. Remote work arrangements can be complicated for employees filing tax returns in multiple states. In its report, State and Local Tax Considerations of Remote Work Arrangements, NCSL's State and Local Taxation Task Force examines emerging tax issues and provides guidance to state legislators confronting the complexities of this ever-evolving economic landscape.

Eric Syverson and Brian Wanko staff NCSL's State and Local Taxation Task Force, which consists of legislators, legislative staff and NCSL Foundation members.