Ever since the Covid-19 pandemic upended our lives, remote work has blossomed. Online job search company Ladders, for example, recently found that remote work opportunities in the summer of 2022 accounted for 36 percent of job openings on the site. And while remote work has declined since its Spring 2020 peak, the arrangement remains far more common today than it was before the pandemic (see Figure 1). New research from Stanford’s Nick Bloom shows that this substantial, three-year rise is the equivalent of 50 years of pre-pandemic remote work growth.

Remote work not only helped Americans weather the pandemic, but also spawned broader benefits for millions of American workers and the U.S. economy. For example, it gave many people the freedom to move and live where they want to live, not simply where their employer is located. One 2022 survey found that 11.7 percent of workers had moved or were planning to move because of remote work, a figure that corresponds to over 24 million Americans nationwide. Another found that 76 percent of remote workers preferred the arrangement over in-person work, and it has proven particularly popular among parents, who can more easily juggle work and family obligations. One recent study found that many workers are willing to trade wage increases for remote work because they so value the amenity.

Beyond the potential wage savings, many employers derive other benefits from remote work and have thus expanded their offerings in recent years. Recent research, for example, reports that remote work can boost employee productivity and retention. Employers also have access to a larger pool of workers, including formerly marginalized ones such as workers with disabilities. The proliferation of remote work also has made it easier for employers to hire workers located in different states or to abandon the expense of a physical headquarters altogether.

Yet, as we discuss in the Remote Work chapter of the new Cato book, Empowering the New American Worker, several government policies have not kept up with the rise of remote work and thus needlessly discourage it:

• State tax nexus. While most states tax employees by their state of residence (assuming that is where they conduct their work), four states determine this “tax nexus” based on where a worker’s employer is located via the “convenience of the employer” rule. With the rise of remote work, this rule has generated interstate taxation disputes, such as when New Hampshire sued Massachusetts in 2020 because the latter’s temporary “convenience” rules taxed roughly 100,000 New Hampshire residents working for Bay State companies. These rules can also greatly increase remote workers’ tax liability and subject them to double taxation. Thus, for example, an employee living and working in Maryland for a New York–based employer could be subject to both Maryland and New York state income taxes because New York is a convenience of the employer state, while Maryland is not.
• State tax withholding. State tax withholding laws can also be a barrier for remote workers who live in a different state from their employer. As Figure 2 shows, most states require employers to withhold that state’s taxes from employees after only one day of work there. And state tax policies also make remote work difficult for employers, as well. If even just one employee works remotely from a different state, companies may now be subject to that state’s corporate and sales tax regime.

• Federal tax uncertainty. Federal tax policy also confounds remote employees. For example, the American Institute of CPAs has voiced concerns about IRS tax treatment of remote employees that can discourage the adoption of remote work. It’s unclear, for example, whether employer‐​provided work equipment (e.g., a laptop) is a taxable form of compensation. Current policy also erroneously assumes that a worker’s home is in the same locality as his employer’s office, and that employers “gain nothing” from remote or hybrid work arrangements. Remote workers can therefore face additional tax burdens for engaging in what are now routine business transactions (e.g., regular travel to their employer’s office).

Fortunately, the book chapter provides commonsense reforms that would fix these problems and stop tipping the policy scales against remote work. This more neutral policy stance would help employees and employers more freely determine the work setup that best suits their needs, not the one that simply assuages various anachronistic policy concerns. Rather than being a blip during the COVID-19 pandemic, remote work has emerged as a popular and beneficial path for many American workers and the businesses that that employ them, producing broader economic benefits along the way. The arrangement’s certainly not right for everyone, but individuals should be making that decision, not the government.

You can check out the entire book here.