Using Telework to Create Jobs and Reduce the Deficit

 As the country strives to gain its footing amidst the jobs crisis and the deficit crisis, lawmakers must focus on the traction telework offers. 

Telework enables businesses to start hiring.  By slashing overhead, recruitment and other business costs, telecommuting makes it more affordable for companies to bring on new personnel.  Consider the 2009 State of the State Address given in North Dakota  by then Governor John Hoeven (R).  While 41 other states faced budget deficits and the nation’s economy was “in a down-cycle,” North Dakota had built a surplus and “a solid financial reserve for the future,” the Governor said.  Telework helped account for the state’s success:  Companies in North Dakota were using telework to create jobs.  One tech-based healthcare company employed over 400 people, about a quarter of whom were telecommuters, and was planning to use telework to hire additional workers without increasing its space needs, according to Hoeven.  He cited other companies, too, that were implementing telework “to help retain and recruit workers, while reducing overhead.”

In addition to making it easier for businesses to create jobs, telework makes it easier for individuals to start working.  It enables unemployed Americans who cannot find jobs in their local communities – and cannot sell their homes to relocate – to broaden the region where they look for work.  Further, according to the National Broadband Plan, increasing telework opportunities could enable 17.5 million individuals to join the workforce, including retirees, homemakers and disabled people, for example.  

The addition of these 17.5 million new teleworkers would yield for the federal government an estimated net increase of over $256 billion a year in income tax revenue, social security revenue and federal disability savings, according to Connected Nation, Inc.

As telework increases employment and federal revenue, it strengthens American companies.  It enables them to hire the best applicants from anywhere in the country and keep turnover low.  It enables them to maximize productivity and continue functioning during emergencies – like powerful storms, flu pandemics or terrorist scares.  At the same time, telework can reduce:

     • The drain on the economy caused by traffic congestion;

     • The federal expense of repairing and maintaining the nation’s

                roads and transit systems;

     • The fuel and security costs resulting from America’s dependence

                on foreign oil.

Telework’s critical economic benefits notwithstanding, a harsh tax penalty continues to thwart its widespread use:  The telecommuter tax.

The telecommuter tax derives from a state tax provision known as the “convenience of the employer” rule.  In a state applying this rule, nonresidents who work for employers located in the state and choose to telecommute part-time must pay taxes to the state on 100% of their salary – not just the wages they earn when they work in the employer’s state, but also the wages they earn at home, in a different state.  Because the states where telecommuters live can also tax the compensation they earn at home, workers across the country are threatened with two state tax bills on the same wages.

The risk of owing taxes to an extra state forces many Americans to reject the telework option.  As a result, businesses cannot use telework to cut the high cost of hiring and retaining employees.

On November 7, 2011, Senators Joseph Lieberman (I-CT) and Richard Blumenthal (D-CT) reintroduced the Telecommuter Tax Fairness Act (S.1811) – legislation that would remove the double tax penalty for interstate telecommuting by prohibiting states from taxing income nonresidents earn when they are physically in another state.  The 112^th Congress must make this bill law.  It is a common sense proposal to eliminate a needless barrier to job growth and deficit reduction.

Telecommuter tax fairness has broad support.  The Telework Coalition has been a long-time champion of the relief Senators Lieberman and Blumenthal are offering.  Supporters have also included:

• The National Taxpayers Union;

• The Small Business & Entrepreneurship Council;

• Take Back Your Time;

• The American Homeowners Grassroots Alliance; and

• The Association for Commuter Transportation. 

Other organizations that have recommended eliminating the penalty for interstate telecommuting include the Mobility Choice Coalition, Workplace Flexibility 2010, the National Foundation for Women Legislators and the National Organization of Black Elected Legislative Women.

In the National Broadband Plan, the Federal Communications Commission (FCC) specifically calls on Congress to consider abolishing the telecommuter tax, asserting that the “double taxation issue … is preventing telework from becoming more widespread.”

To get more Americans working and make it easier for U.S. businesses to thrive – to relieve workers from unduly burdensome taxes and help bring our deficit under control – lawmakers must respond to the FCC’s call.  Congress must seize the opportunity Senators Lieberman and Blumenthal have presented and finally pass legislation to get rid of the double tax penalty for telecommuting across state lines.

Nicole Belson Goluboff, Esq.

Author, The Law of Telecommuting, The Law of Telecommuting Supplement, Telecommuting for Lawyers