Key Takeaways
- 22 of 41 states with an income tax require a return filing after just one day of work in that state
- 28% of employees worked outside their home state or country during the pandemic - only 1 in 3 reported it to HR
- 75% of Deloitte survey respondents rated corporate tax exposure from international remote work as their top regulatory concern
- The OECD's 2025 Model Tax Convention update introduced a 50% working-time safe harbor to limit permanent establishment risk
- IRS assessed 1.17 million employment tax penalties totaling nearly $19 billion in FY2024
- Organizations typically spend $50,000 to $75,000 annually on comprehensive remote work compliance infrastructure
Remote work tax compliance statistics 2026: multi-state obligations, penalties, and employer costs
Most companies that adopted remote work policies focused on productivity, real estate savings, and recruiting reach. Tax compliance was an afterthought for many of them. That's a problem now.
When employees work from a state or country that isn't their designated work location, they often create legal obligations for their employer in that jurisdiction: income tax withholding, corporate nexus, and in some cases permanent establishment. The rules differ by state and country. Many are triggered by a single day of work. And most HR teams significantly overestimate how accurately their employees report where they actually work.
The data below comes from the National Taxpayers Union Foundation, Deloitte, KPMG, the OECD, the IRS, the Association of Certified Fraud Examiners, and several workforce mobility research firms.
1. How many remote workers have multi-state or multi-country tax obligations?
A Monaeo analysis of location compliance tracking data found that 78% of employees worked outside their home state or country during the course of a year. That figure includes business travel, extended stays, and employees who simply relocated temporarily without notifying HR.
Topia surveyed employees about the pandemic period and found 28% worked outside their home state or country at some point during COVID-19. Of those, only one-third reported all of those workdays to HR. Twenty-four percent reported none of their out-of-state workdays at all - even though 61% of that group were aware of the tax compliance implications.
The reporting gap has not closed. Monaeo found that 67% of employees who worked outside their home state or country did not report all their workdays to HR. Yet 86% of HR professionals believe their employees will accurately self-report location changes - a level of confidence that significantly overstates actual behavior.
Nearly half of HR professionals have discovered employees working where they should not be.
| Metric | Data |
|---|---|
| Employees who worked outside home state/country in a year | 78% |
| Employees who did NOT report all out-of-state days to HR | 67% |
| HR professionals who believe employees self-report accurately | 86% |
| HR professionals who have discovered employees in unauthorized locations | ~50% |
| Employees aware of tax implications but still not reporting | 24% reported nothing |
Sources: Monaeo, Managing the Hidden Risks of a Distributed Workforce; Topia, Adapt Survey (2021)
2. State nexus rules and the single-day problem
The legal environment is fragmented and, in many states, aggressive. The National Taxpayers Union Foundation's 2025 ROAM (Remote Obligations and Mobility) Index analyzed state-level rules across all 41 states with an income tax:
- 22 of 41 states require employees to file a state income tax return after working just one day in that state, regardless of income earned
- 15 states require employers to begin income tax withholding from day one of work in that state
- The cost to prepare and file an additional state tax return often exceeds the actual tax liability, making compliance itself the dominant burden
When withholding begins varies significantly by state:
| State threshold | Policy |
|---|---|
| No de minimis threshold (withhold from day one) | New York, several others |
| 30-day safe harbor | Pennsylvania |
| Varies by income + days combination | Most remaining states |
New York is the strictest. In May 2025, the New York State Tax Appeals Tribunal upheld New York's income tax rules against a law professor who worked remotely from Connecticut. The ruling confirmed that being hired specifically as a remote worker because the employee lives in another state does not constitute employer necessity and does not exempt the employee from New York tax obligations.
The NTUF's 2025 ROAM Index recommends that all states adopt at least a 30-day de minimis safe harbor before withholding is triggered. As of 2025, most states have not.
Sources: National Taxpayers Union Foundation, 2025 ROAM Index; BMF CPA, Navigating State Income Tax Withholding in the Era of Mobile Workforces (December 2025)
3. The convenience-of-employer rule and double taxation risk
Eight states currently enforce some version of the "convenience of the employer" rule: Alabama, Connecticut, Delaware, Nebraska, New Jersey, New York, Oregon, and Pennsylvania. Full rules apply in Alabama, Delaware, Nebraska, New York, and Pennsylvania.
Under the convenience rule, if an employee chooses to work remotely rather than being required to by their employer, their income may be taxed by both the state where the employer's office is located and the state where the employee actually lives and works. This means a remote employee can face double state income taxation on the same wages.
The 2025 New York Tax Appeals Tribunal ruling confirmed this. Remote work arrangements chosen primarily for the employee's convenience - not driven by a documented business need - do not qualify for exemption under the rule.
For employers with offices in New York, Delaware, or Pennsylvania, this creates significant liability exposure whenever they hire remote employees who work from other states.
Sources: Mosey, Wipfli, Blank Rome LLP (2025 analysis); Benefits Law Advisor, New York Tax Appeals Tribunal ruling (May 2025)
4. What employers spend on remote work tax compliance
Practitioner estimates place typical annual spending on comprehensive remote work compliance at $50,000 to $75,000 per year for organizations with distributed workforces. That range covers payroll software updates, multi-state tax filing preparation, legal review of nexus exposure, and compliance tooling. The NTUF notes that positive ROI is typically realized within 12 to 18 months through avoided penalties and reduced administrative rework.
The NTUF's 2025 analysis puts the national figure in context: U.S. taxpayers collectively spent 6.93 billion hours complying with the tax code, generating $319.7 billion in lost time and at least $157.1 billion in out-of-pocket expenses (software subscriptions, professional services) - a combined compliance cost exceeding $476 billion annually.
For growing companies with employees spread across states or countries, the practical cost of non-compliance is higher than the cost of building infrastructure. Multi-state payroll errors require amended filings, back-pay calculations, and potential interest charges that accumulate quickly.
Sources: TimeTrex (2026 Remote Worker Tax Guide); National Taxpayers Union Foundation, The Hidden Cost of the Tax Code (2025)
5. IRS enforcement and employment tax penalties
The IRS assessed more than 1.17 million penalties related to federal tax deposit failures for employment taxes in FY2024, totaling nearly $19 billion. Federal failure-to-deposit penalties escalate based on how late the deposit is:
| Days late | Penalty rate |
|---|---|
| 1 to 5 days | 2% |
| 6 to 15 days | 5% |
| More than 15 days | 10% |
| After first IRS notice (10+ days) | 15% |
State-level penalties are also significant. New York, for example, assesses a 5% per month penalty on unpaid withholding taxes, up to a maximum of 25% additional.
One important development for 2026: the IRS workforce shrank by approximately 27% in 2025, dropping from over 102,000 to roughly 74,000 employees. The Small Business/Self-Employed division fell 37%, and the Large Business and International division fell 25% - the two divisions responsible for most field audits of employers. Whether this reduces enforcement activity in the near term remains to be seen. The underlying penalty infrastructure and assessment systems remain fully active.
Sources: IRS, Collections, Activities, Penalties and Appeals (FY2024); New York State Department of Taxation and Finance; CNBC / IRS FY2025 staffing reports
6. International remote work: permanent establishment exposure
Deloitte's Global Tax Remote Work Survey found that 75% of corporate tax respondents rated international remote work's corporate tax implications as their top regulatory concern. Employee income tax exposure (65%) and social security obligations (65%) ranked close behind.
The same survey found that more than half of tax directors reported higher levels of cross-border work requests compared to the period before the pandemic. Yet 40% of large international companies still lack formal tax and payroll guidelines for managing employees who work across borders.
KPMG's 2025 Global Mobility Benchmarking Report (covering 456 multinational enterprises across 29 jurisdictions) found:
- 52% of companies now offer short-term "workations" of fewer than 30 days per year
- 29% allow arrangements under 90 days
- 23% have embraced permanent cross-border remote work arrangements
- 42% conducted a global mobility policy review in the past year, driven primarily by expanding remote work requests
Ius Laboris's Global Mobility in 2026 report found that 51% of employers declined a business opportunity in the past two years specifically because of immigration and tax compliance challenges tied to cross-border workforce mobility.
Sources: Deloitte, Global Tax Remote Work Survey; KPMG, 2025 Global Mobility Benchmarking Report; Ius Laboris, Global Mobility in 2026
7. The OECD's 2025 model tax convention update
In November 2025, the OECD released the 2025 Update to the Model Tax Convention, amending Article 5 (Permanent Establishment) to address cross-border remote work. The new provision is a 50% working-time safe harbor.
Under the updated model, if an employee spends less than 50% of their total working time in a remote location in another treaty country over any 12-month period, that location is generally not treated as a "fixed place of business" for the employer. This means no permanent establishment is created in the remote-work country.
That threshold matters less than it sounds. An employee working from a foreign country two or three days per week can cross 50% faster than most employers expect, which means active workday tracking by jurisdiction is not optional for companies with regular cross-border arrangements.
Deloitte's survey found that 79% of respondents want OECD harmonization of international remote work tax rules, indicating widespread recognition that the current patchwork approach creates unnecessary friction. The 2025 update is a step toward that harmonization, though adoption by individual countries into their bilateral tax treaties takes time.
Sources: OECD, 2025 Update to the Model Tax Convention (November 19, 2025); EY, KPMG, PwC tax alerts (November 2025); Deloitte, Global Tax Remote Work Survey
8. Employee location tracking: what employees are willing to share
Employers sometimes assume employees will resist location tracking. The data does not support that assumption.
Monaeo's research found that most employees are comfortable sharing their location for compliance purposes:
- 94% are comfortable sharing their country or state-level location
- 92% are comfortable sharing city-level location
- 79% are comfortable sharing street-level location
The problem isn't privacy. Employees who work from a different location for a week often don't think of it as a reportable tax event, even when they know multi-state taxation exists. Employers who build low-friction reporting into travel approval workflows get better data than those waiting for employees to self-identify situations they don't recognize as compliance-relevant.
Source: Monaeo, Managing the Hidden Risks of a Distributed Workforce
9. Payroll fraud and ghost employee risk in remote teams
The compliance burden runs in both directions. Employers must manage legitimate workers who appear in unexpected jurisdictions, and they must also guard against fraudulent payroll entries that are harder to catch when nobody is physically in the same building.
The Association of Certified Fraud Examiners' 2024 Report to the Nations - based on 1,921 fraud cases across 138 countries - found:
- Payroll fraud accounts for 15% of all occupational fraud in the US and Canada
- Median loss per payroll fraud incident: $50,000
- Average time to detect payroll fraud: 18 months
- Organizations lose an estimated 5% of annual revenue to occupational fraud overall
Up to 29% of businesses globally are estimated to be affected by ghost employee fraud - payroll entries for employees who do not exist or no longer work for the organization.
Treasury Inspector General for Tax Administration (TIGTA) data shows the IRS Criminal Investigation division identified 354 ghost employer leads between June 2018 and May 2023 - schemes where payroll taxes are withheld from employees but never remitted to the IRS.
Remote work environments, where physical headcounts are harder to verify, require more disciplined payroll auditing processes than traditional offices.
Sources: ACFE, 2024 Report to the Nations; TIGTA, Criminal Investigation Had Success With Ghost Employers (April 2024)
10. What the compliance data means for employers in 2026
Legal exposure from distributed workforces has grown faster than compliance infrastructure at most companies. A few things stand out.
State obligations are immediate. In most states, one employee working from a new location creates withholding and filing requirements. With 78% of workers spending at least some time working outside their designated state in a year, most mid-sized employers have more multi-state obligations than their payroll systems are capturing.
Self-reporting is not a reliable control. Two-thirds of employees who work outside their home state don't report all their workdays. The fix is building location reporting into travel and work-from-anywhere approvals rather than waiting for employees to flag something they may not recognize as a compliance issue.
International exposure is growing. 40% of large international companies still lack formal cross-border tax guidelines, even as remote work requests across borders have increased since the pandemic. The OECD's 2025 safe-harbor rule gives employers a cleaner framework, but the 50% working-time threshold can be crossed quickly by employees who regularly work across borders.
The math generally favors compliance spending. The $50,000 to $75,000 annual figure for comprehensive compliance infrastructure is considerably less than what IRS penalties (2% to 15% of deposits) and state penalties (up to 25% in New York) can accumulate to on modest payroll liabilities.
For employers managing remote teams across borders, the cross-border hiring statistics and remote work statistics provide broader context on international workforce trends. Teams that need administrative support for compliance tracking and HR coordination can also explore virtual assistant services built for distributed operations.
Key data sources
- National Taxpayers Union Foundation, 2025 ROAM (Remote Obligations and Mobility) Index
- Deloitte, Operationalize Remote Work: Global Tax Remote Work Survey
- KPMG, 2025 Global Mobility Benchmarking Report (456 multinational enterprises, 29 jurisdictions)
- OECD, 2025 Update to the Model Tax Convention (November 19, 2025)
- Topia, Adapt Survey (2021, PR Newswire)
- Monaeo, Managing the Hidden Risks of a Distributed Workforce
- Association of Certified Fraud Examiners, 2024 Report to the Nations
- Treasury Inspector General for Tax Administration (TIGTA), Criminal Investigation Had Success With Ghost Employers (April 2024)
- IRS, Collections, Activities, Penalties and Appeals (FY2024)
- Ius Laboris, Global Mobility in 2026: Four Trends Redefining Strategy, Risk and Resilience
- National Taxpayers Union Foundation, The Hidden Cost of the Tax Code (2025)
- BMF CPA, Navigating State Income Tax Withholding in the Era of Mobile Workforces (December 2025)
- New York State Tax Appeals Tribunal ruling (May 2025)
- Benefits Law Advisor, remote work convenience rule analysis (2025)
- Mosey and Wipfli, state nexus analysis (2025)
- Blank Rome LLP, convenience-of-employer rule review (2025)