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Tax pros seek official guidance on hybrid work arrangements

Father and son working from home
More companies are pushing to get employees to leave their home workspaces and return to the office. Until that happens fully, tax professionals are asking for updated tax guidance on dealing with hybrid and work from home arrangements.

Summer's over. Schools are back in session. And more businesses are telling employees to return to the office.

But many companies expect that at least some of their workers won't comply. And how will they handle these in-office holdouts?

Office returns sought: Overall, more firms now are firmly nudging workers to return.

A recent survey by business consulting firm Gartner, and reported by CNN, found that 69 percent of mid- to large-sized employers say they require employees with jobs that can be done remotely to be at work a set number of days.

Of that group, 26 percent require employees to be on site three days a week, with 17 percent opting for a two-day minimum.

If there's no COVID-19 variant surge, the current workplace flexibility likely will become more set at more days in the office.

Some workers, and not just Tesla employees, might even face layoffs if they fail to show up at the office more regularly.

Remote contractors, not employees: There's also the possibility that successfully doing your job from home could backfire on employees as more employers demand they return to the office.

Once office resistant employees make the case that they can fully do their jobs remotely, companies may decide they're right.

And the companies could take it further, asking why they should keep the work-from-home personnel. Instead, they opt to replace remote employees with remote contractors, saving the businesses a lot of employee-related costs.

There still are a lot of moving parts as far as the path the coronavirus pandemic might take this fall and winter, as well as how workplaces will deal with such a possibility. So major employee-employer changes will take some time to resolve.

In the meantime, however, it looks like at least some companies will continue to use some sort of hybrid work arrangements. That will mean issues for both workers and workplaces.

Hybrid work, hybrid tax complications: From a tax perspective, the tax professional community is seeking guidance from Uncle Sam.

Last month, the American Institute of CPAs (AICPA) formally asked the Department of the Treasury and the Internal Revenue Service for updated guidance in several key areas related to employees working remotely. The accountants' group also offered its own recommendations regarding the taxation of payments related to remote work.

"Many companies are moving to fully remote or hybrid work schedules, causing tax issues with fringe benefits which employers offer to employees," said Kristin Esposito, CPA, MST, and AICPA Director for Tax Policy & Advocacy, in the statement about the organization's remote work clarification request.

Meanwhile, many employees prefer the work-from-home format, and their increased productivity has not escaped their employers. Plus, the companies also have been able to reduce office maintenance costs.

But with these positives, come some potential problems.

New work arrangements, old guidance: Many employees have questioned the impact of working from home on various benefits, such as expenses for travel to an employer-provided work location when travel days are limited and the travel distance may have been expanded.

Unfortunately, for both employees and employers, many revenue rulings and interpretations of case law in this area are outdated, says AICPA, which creates unnecessary confusion and stress.

"The old rules aren't working anymore," added Esposito.

The AICPA letter to Treasury and IRS detailed issues of concern about work from home and hybrid employment arrangements. The communique also included recommendations it urges the IRS "to strongly consider."

AICPA's comments and recommendations in connection with current tax guidance focus on:  

  1. Gross Income / Exclusions from Gross Income
  2. Away from Home
  3. Tax Home
  4. Pursuit of a Trade or Business
  5. Principal Place of Business – Daily Transportation Expenses

As for the organization's recommendations related to today's work arrangements, AICPA covers:

  1. Principal Place of Business
  2. Work Arrangements: Employer-Location Based, Remote, and Hybrid
    a. Definitions of Employer Location-Based, Remote and Hybrid Work Arrangements to Define Employee's Tax Home 
    b. Facts and Circumstances Test for use in the Classification of a Remote Employee and Defining a Hybrid Employee's Tax Home 
    c. Safe Harbor for Use in Defining a Remote Worker d. Employee-Employer Arrangement
  3. Pursuit of a Trade or Business
  4. Non-Travel Expenses Incurred While Working Remotely
  5. Examples

Guidance sought ASAP: AICPA is asking for a quick response to its and its members' concerns since current "lack of updated guidance has left employers and employees in the untenable position of making decisions regarding employer workplace policies while the rules … remain uncertain."

And taking into account the reality that acting quickly often has a different meaning for Treasury and the IRS and tax practitioners, AICPA also asks that " the formulation of guidance also take into account any necessary transition relief to facilitate compliance."

Such transition relief, says AICPA, will help the many employers who already have established policies and positions based on reasonable interpretations of existing, albeit outdated, guidance.

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