Navigating State Tax Incentives for Remote and Hybrid Workforces

The business landscape has transformed in recent years, with many companies adopting hybrid and fully remote work schedules. This shift not only helps companies save on real estate and office costs but also presents opportunities for tax savings as companies expand their at-home workforce. As a result, states have had to adjust their tax incentive programs to accommodate companies with a significant remote workforce.

For tax credit eligibility, a remote employee is typically defined as a full-time worker who performs their duties away from the project location, while hybrid workers split their time between home and the office. Companies concentrating the growth of their workforce in one state (15+ new, full-time employees) rather than spread across multiple states can qualify for credits, primarily because many job creation tax credits are income tax-based and depend on the tax contributions made to the state. States have responded to this trend by updating their tax credit programs to cover workers who live and work in the state but do not physically work at the project site.

For example, the changes to Wisconsin’s Business Tax Credit (BDTC) that took effect in March 2024 include hybrid and remote workers. This adjustment aligns with broader automation trends and addresses skilled labor shortages. States’ recognition and encouragement of remote work illustrate their support for evolving business practices and the need to access a larger talent pool unrestricted by geography.

South Carolina is also on the verge of adopting a remote worker-friendly policy. The state is considering legislation (Bill 4087) to extend job creation credits to remote employees involved in headquarters-related functions. As states introduce and revise legislation, businesses must understand the implications and advantages for their operations. Indiana’s Economic Development for a Growing Economy (EDGE), Colorado’s Job Growth Incentive Tax Credit (JGITC), and North Carolina’s Job Development Investment Grant (JDIG) are just a few of the many other state programs that recognize remote and hybrid workers.

Navigating the complexities of tax codes for remote workers also requires awareness of state-specific limitations. Certain states may have additional provisions, such as requiring remote workers to reside within a specified distance from the office they report to in order to qualify for credits. These factors can significantly influence where businesses choose to expand when they have substantial remote workforces.

At McGuire Sponsel, we specialize in navigating the complexities of remote and hybrid work arrangements. Leveraging our expertise, we help our clients maximize state incentives and benefits. We provide consultation on compliance and manage amendments resulting from changes in work arrangements, ensuring our clients stay informed and compliant with evolving legislation.

Reach out to our Location Advisory Services team with any questions on state-specific tax incentives or any other site selection issue.