Hybrid Work and Taxes: What You Need to Know

Since the COVID-19 pandemic forced people out of offices and into working from home, the concept of hybrid working has developed significantly, as many businesses and employees have benefited from the mix of at-home and office work. 

Hybrid working has allowed many workers to improve their work-life balance, saving time and money on things like commuting, while also making it easier for people to spend time with their families and enjoy working in a comfortable and tailored environment.  

Out of the jobs that can facilitate hybrid work, 41% of that population is working this way in the U.S. This makes up a considerable portion of the workforce, and although it has many benefits, people need to be aware of the tax implications. 

Hybrid working affects your taxes differently than being in the office consistently. Here's everything you need to know about hybrid working and taxes to ensure there are no issues for you.

What is Hybrid Working?

When paying taxes, you must know what type of work model you are currently in. Hybrid working is defined as a mix of both in-office and remote work. The specifics of this arrangement, however, can vary greatly. 

Some people may work most of the week in the office with only one day at home, while others may split their time evenly between the office and their home. Each scenario is considered a form of hybrid work, so long as there is some regular combination of in-office and remote work. 

Therefore, you are a hybrid worker if you spend part of your working hours in the office and part at home, regardless of the balance.

Hybrid working was designed to add more flexibility and support for employees and grew in popularity during the global pandemic. Since the risk of COVID has now lowered, hybrid working has remained as an excellent middle ground between remote and at-office working, ensuring that workers get effective in-person time with clients and peers but can also enjoy the flexibility of being at home. 

Hybrid working usually offers workers more autonomy, as it's harder to micromanage and monitor how a worker completes their tasks. This can create a more productive, healthy, and stable workforce, which benefits the employer, especially as it helps reduce staff turnover. 

It's essential to know how hybrid and remote working are different. Remote working is where the job role is completed exclusively from home and has no office hours. A hybrid arrangement requires in-office attendance as part of your contract.

How Hybrid Work Affects Tax for Employers

If you're an employer, having hybrid staff can affect how you manage payroll and taxes. You need to think about: 

• When employing hybrid workers, you must comply with payroll tax withholding rules to ensure accuracy. 
• Hiring a hybrid worker can affect business tax filings, including pass-through business income filings, workers' compensation, and sales tax. 

1. Pass-through business income filings: Pass-through taxation allows the company's income to be taxed only once. The income is 'passed through' to the owners and reported on their individual tax returns. However, if your hybrid worker is based in a different region, you may need to consider the specific region tax laws, which can impact how you file these taxes.

2. Workers' compensation: Typically, the amount you pay for workers' compensation insurance depends on where your employees work. Different regions have different rules and rates for workers' compensation. If a hybrid worker is working from a region with higher rates, this could potentially increase your insurance costs.

3. Sales tax: If your hybrid worker is involved in the sales process and is working from a different region, it might establish a sales tax nexus in that location. A nexus is a connection that enables a region to tax a business. This means you could be responsible for collecting and remitting sales tax in that region.

• Having hybrid and remote workers can mean your business has employees in multiple locations or regions. You need to ensure you're aware of tax laws in all the regions where you operate to ensure compliance.

As a result of the potential complications that hybrid working can cause for an employer, many companies need dedicated staff to manage things like payroll and taxes. 

This is becoming a large aspect of HR work, causing HR’s role in hybrid work to change and grow more prominent. This may also include the need to schedule and book appointments for discussions regarding tax complications or employee inquiries.

How Hybrid Work Affects Tax for Employees

Being a hybrid worker can make paying your taxes slightly different. Here's how it can affect you: 

• As a hybrid worker, your eligibility to claim tax refunds and deductions from certain expenses might vary. For example, if you spend the majority of your time working from home and have a dedicated workspace that you use exclusively for your work, you might qualify for home office tax deductions, depending on your local tax laws. 

Conversely, if you only work from home occasionally or do not have a dedicated workspace, you may not be eligible for these deductions. Travel expenses can also be tricky. 

While in some cases you might be able to claim travel expenses, these are often limited to travel for work purposes and do not usually include commuting. It's always best to consult with a tax professional to understand the specific criteria and regulations in your area.

• If you live and work in two different tax regions, the tax rules you need to follow can change. In many cases, you will be required to pay taxes in the region where you work from home. 

If you also work in an office in a different tax region, you may need to comply with tax requirements there as well. For example, in the U.S., you would typically need to file a non-resident tax form in the state where you worked if it's different from your home state. 

However, regulations can vary significantly worldwide, so it's important to understand the specific tax laws in your home and work regions. Note that some regions have no income tax, which can be beneficial - for instance, some of the most popular U.S. states to retire in have this advantage

Top Tips for Getting Your Taxes Right as a Hybrid Worker

If you want to ensure you don't get caught out with your taxes, here are a few things you can do to ensure everything is in order regarding tax season. 

• Track Work Expenses 

When working out your taxes as a hybrid worker, keeping a record of all your job-related expenses is crucial. These may include necessary work-related supplies or equipment, professional development courses, or job-related travel expenses.

Knowing how much you spent and when you spent them can help determine if you can get any refunds and deductions. You may have additional expenses related to your work that you might not initially consider. 

These can include costs for internet service, electricity, office supplies, and even equipment upgrades like a new laptop or office furniture. Make sure you save all relevant receipts, bills, and documentation that can support these expenses. 

Remember that you may not always be able to get deductions from work expenses made for hybrid or remote working. In general, the IRS allows for the deduction of 'ordinary and necessary' business expenses. 

However, for employees who receive a salary, unreimbursed employee expenses are not typically deductible. To avoid confusion, keep these potentially non-deductible expenses separate from office expenses, which may have different tax treatment.

• Track hours worked at home and in the office 

Knowing how much time you've worked at home compared to the office as a hybrid worker can make paying taxes much easier, as you'll know how much income you've accrued in both situations. Treating these two different working locations separately will help you avoid confusion and make it more likely that you get things accurate when filing your taxes. To make things easy for you, you can use an app or program for service tracking to see how much time you spend on what.  

• Keep up to date with any changes

Hybrid working is a relatively new phenomenon, meaning that the rules regarding tax are often in flux and may change in the future. If you're a hybrid worker, it's crucial to stay informed about any changes to tax laws and regulations that might affect you. 

To do this, consider subscribing to updates from reliable sources such as the Internal Revenue Service (IRS) in the U.S., your state's tax department, or a trusted accountancy service. 

For instance, the IRS offers a Newsroom, as well as email subscription services for tax law updates and changes. Regularly checking these resources or setting up notifications can help you stay ahead of changes and potentially prevent complications.

• Speak with a tax professional

Sorting out and filing your taxes can be problematic in the most optimal circumstances, so managing it independently with the added complication of hybrid work can be tough. Make things easier for yourself by partnering with a tax professional who can evaluate your earnings and other data to point you in the right direction and manage this on your behalf. 

Using a tax professional will help you get the most out of your money and ensure you file your taxes as a hybrid worker correctly. They can also advise you about other money-saving avenues, too. For example, they may also be able to suggest good saving accounts, investment opportunities, and different types of credit that benefit you. 

Conclusion

Being a hybrid worker, or employing one, can change many things regarding tax. Make sure that you take the time to fully understand how hybrid work changes what you're eligible for and what you need to pay. 

Be it a reduction in tax refunds or having to juggle tax laws in multiple states, the flexibility that hybrid working affords you daily does make tax season a little more complicated. Following the tips and guidelines outlined above will form a good start to making things easier.