For many working parents, telecommuting is a critical tool for meeting both job and family demands.  For many employers, telecommuting is a critical tool for surviving a challenging economy and prospering when conditions brighten.  Despite the work-life, economic and numerous other benefits of telework, some state tax authorities are making this flexible work arrangement needlessly hard to adopt, threatening employees who telecommute across state lines with an egregious tax penalty. 

Proposed legislation is pending in Congress that would abolish the penalty:  The Telecommuter Tax Fairness Act (H.R. 2600).  Both employees and employers should urge their federal representatives and senators to pass this legislation.

The Telecommuter Penalty Tax

Some states maintain a tax rule known as the “convenience of the employer” rule.  New York is one, and it applies the rule aggressively.  Under the rule in New York, for example, if a nonresident works for a New York employer and decides to telecommute part-time, New York will tax her, not just on the wages she earns on her New York days, but also on the wages she earns on her telework days.  Because her home state can also tax the wages she earns at home, she risks being taxed twice on those wages just because she telecommutes.  

The double tax penalty for telecommuting can make the practice prohibitively expensive.  In addition to frustrating employees with hard-to-juggle work and family obligations, it frustrates:
•  Workers who need to lower their commuting and child care costs;
•  People who have lost their jobs, cannot relocate and need to broaden where they look for work;
•  Disabled Americans, for whom daily commuting or traditional office work may be impossible; and
•  Military spouses who, because of frequent transfers, cannot stay with one employer long enough to build a career.

Employers also suffer because of the telecommuter tax.  Telework can help businesses cut real estate and other overhead costs.  In a fragile economy, such savings can help them avoid layoffs and even start hiring.  Telework can help firms bring on the best workers while minimizing recruitment expenses; reduce absenteeism; increase productivity and stay open during emergencies - like a hurricane, flu outbreak or terrorist scare.  However, by making telework unaffordable for many employees, the telecommuter tax shackles businesses trying to tap these advantages.  In addition, the tax can saddle employers with overwhelming payroll responsibilities.  For example, determining where to withhold taxes for multi-state telecommuters can be extremely confusing.  

Communities suffer because of the convenience rule, too.  By discouraging telework - and forcing commuters into cars and mass transit - the rule promotes excessive traffic, fuel consumption and carbon emissions.

The Solution
The Telecommuter Tax Fairness Act would solve these problems, barring states from taxing the compensation nonresidents earn in their home states.  U.S. Representatives Jim Himes (D-CT) and Frank Wolf (R-VA) introduced the bill.  Other members of Congress, representing states from New York to Washington State, support it.  The National Broadband Plan recommends that Congress consider it.

A diverse group of stakeholders outside government has endorsed the bi-partisan measure.  This group includes organizations advocating for work/life balance, telework, transportation, taxpayers, homeowners and small businesses.  Workplace Flexibility 2010 - a Georgetown University Law Center initiative - has called for telecommuter tax fairness in its Public Policy Platform on Flexible Work Arrangements.    

Both employees and employers looking to implement telework should join these proponents of telecommuter tax fairness:  They should tell their delegates in Congress to enact H.R. 2600 quickly.  By removing a significant economic obstacle to telecommuting, this legislation would offer considerable relief to workers struggling to fulfill both work and family responsibilities.  In the process, it would spur job growth, boost businesses, relieve traffic, protect the environment and strengthen our energy security.

Nicole Belson Goluboff is a lawyer who writes extensively on the legal consequences of telework.  She is the author of The Law of Telecommuting (ALI-ABA 2001 with 2004 Supplement) and Telecommuting for Lawyers (ABA 1998).  She is also an Advisory Board member of the Telework Coalition, an advocacy group headquartered in Washington, D.C.

The opinions expressed here are those of the author. This article does not contain legal advice for particular cases.  Readers seeking legal advice should consult an attorney.