The Cost benefit analysis of working remotely - Incentives vs remote work taxation
Being paid to work remotely, or taxed for the privilege of remote work. How governments and organizations are looking to support or penalize the future of work.
Here's the recap...In today's episode we discuss a few recent articles related to the Dollars 💵 & Cents 🪙 of working remotely. Depending where you live or move to, you can be incentivized to work remotely. Whether being offered money 💰, bikes 🚲 & office space 🏢 to relocate. On the other hand, being hit by a remote work tax from your permanent/temporary residence or simply for the privilege to work remotely.
See the full episode transcript below...
Do companies that are saving tons of money on reduced real estate costs, really want to tax happier and more productive employees for the working from home?
Incentivizing relocation to remote friendly locations.
Forward think regions of the world like Arkansas, Tulsa, Southern Italy, and more are incentivizing people to relocate and work remotely. Many more countries are offering remote visas to entice people to work remotely for one year. In my opinion these locations are looking at the financial benefits in the long-term; which is fantastic. More money coming into local economies via taxes or spending on local businesses. Thus uplifting local economies. More cities need to follow suit. It will also require federal governments to build the infrastructure to support the migration out of the larger urban areas. Be it spending on transportation, technology, and support of local communities to move these people to the rural regions.
Remote work tax paid to permanent/temporary locations
We're not accountants, so we'll stay out of the legal issues here. This issue mostly effects Digital Nomads; which make up a very small minority of remote workers. Most digital nomads we've met travel for weeks to maybe six months at a time. Most of the year spend in their permanent residence.
As remote work continues to grow and more countries offer 'remote visas' this will be an issue many federal tax agencies will need to consider. Currently if you go on a two week vacation with your laptop, and happen to answer a few business emails while sitting on the beach. Should you be taxed in that vacation location? What will the definition of taxable residency be?
Remote work is a taxable privilege
Deutsche Bank believes remote work is a privilege. I could really stop here. It's clear over the years of the advantages of remote work. Happier & more productive employees. Significantly reduced expenses due to less office space. Need we say more. Yet, with the better bottom line, the thought of taxing against the significant benefits.
If you've relocated to take a remote work incentive package or have run into tax issues while working from a remote destination, drop us a line. If you believe remote work is truly a privilege and should be taxed, we'd love to debate you. Please share your thoughts and feedback.
In the last week or two if I have seen a lot of bad press in the news about remote work. I've read three or four remote hate articles. One is from the New York times and the other related to Deutsche Bank. Really related to the global pandemic and kids being at home and people being ill and all the other stuff.
I think there's a lot of bad press put recently on remote work as a whole. Because of that, I think we should start the next hashtag #MakeRemoteGreatAgain. We're big believers in remote for a long time, but again, in the last number of months it's gotten negative press. I believe for the wrong reasons. So I think it's time to make remote great. What do you think?
I think we could do that. I'm not sure about the hashtag though. I'm curious about the remote hate from Deutsche bank. Do you want to start with that?
Sure. One of the things I really want to talk about which was brought up in these articles is the cost of working remotely from the employee side. These focus on the positive and negative financial possibilities of working remotely. I'm a believer in good news first versus the negative news. So if it's cool with you, I'd rather start with the good news, and then shift to the doldrums afterward. Though I'm happy to start where you want. What do you think?
Yeah. That sounds like a reasonable place to start.
Awesome. So last week, there were a few articles I read across a number of different channels like Forbes and Fox News regarding new remote-friendly locations. Northwestern Arkansas being the next destination to offer relocation incentives. Providing people who moved to that region $10,000 in cash, and a free mountain bike to relocate. I guess it's in a mountainous area, and there are lots of nature trails and things around. They're not the first one to do that. Tulsa, Oklahoma is well known for doing this. For the last few years offering $10,000 and free co-working space for people to move there.
I have a friend who I mentored for a short while, that moved from South Africa to Tulsa for the remote program. I know the state of Vermont and a town in Italy offers similar Which to me is actually pretty cool. The town in Italy, I believe went bankrupt a few years back. Most of the residents are older. All the younger people have moved, to more metropolitan areas of Italy. So they're selling the homes within for like two Euros. Something super duper cheap with. Hoping people will permanently relocate to live there. They require living there for five years and trying to start a business or work there remotely.
That's pretty awesome to be able to move into the mountains and be incentivized to do so. We're seeing more forward-thinking doing this. I believe this is probably the best opportunity to grow and migrate out of the cities. Potentially the biggest opportunity for mass migration and infrastructure expansion since the New Deal in the US. This of course helped the US get out of the great depression with all the infrastructure work put into building roads, railroads, dams, and things to move people around the country. I'd say it's one of the major reasons why the US won in World War II, but that's a totally different topic. This will be a great opportunity for countries to relocate people from urban to rural areas.
Yea, to decentralize the cities, for sure.
There's so much effort being put into the future of cities. How to make these urban areas more rural. Whether it's building with built-in flowing gardens. Kind of like the biblical stories of the hanging gardens of Babylon. The idea is to merged merge cities into nature. The other option is for governments to get people out of the cities with remote work growing so much.
Yeah, definitely. When I first moved out here to Beit Shemesh, Israel this is the mountainous Samson Hills. I started hiking and mountain biking more. It's the difference between our quarantine or COVID life versus, what I was trying to live with remote living. When we were locked down and we weren't allowed to leave the house, I missed all that stuff that I really needed for my mental and physical health to get out into the hills. So really cool for cities to say move here and get a mountain bike. That's a really awesome way to promote health. A different way of living then in a city and taking a subway to work.
Yeah, I totally agree. When I joined Invision all those years back, I remember having the conversation during the interview process. I was living in Long Island, but I knew at some point I would move back to Israel. I would say to the CEO, "Hey, as a remote company, this is going to be my ticket to go back." Thankfully it worked out. I love having the opportunity to go hiking and get out of the house into nature within a few minutes walk or drive. Obviously, there are so many more benefits for this. However to just focus on the financial side, like the obvious cost savings of no commuting. When I was in Long Island, I believe the monthly pass for the Long Island Railroad was somewhere between $200-$300 a month.
Then you needed a monthly subway pass, which was maybe a hundred bucks. It's been so long ago, thankfully I've forgotten it. So we're talking about $300-$400 a month just in the cost of transportation. There is such an opportunity to save money, whether it's on transportation or related costs. I think we're going to talk about this in the Deutsche Bank conversation. Instead of $5 at Starbucks for your cappuccino, you can make the same thing at home for a fraction of the cost. As for food, in New York City the average cost of lunch back then was probably around $15. Now, being able to reduce those costs home. That said, I think there's an opportunity for more local growth, but I mean, the cost savings for the employer, to me, just outstanding. And then the opportunity to beyond cities and in countries offering visas like numerous countries in the Caribbean to try to raise income tax. While you're living in paradise and working from the beach and getting stuff done. You can get paid nicely and hopefully save money on taxes as well.
Yeah, for sure. There' are all these positive if we embrace work from home living or remote living. We're outside more, we go mountain biking, and can decrease our costs. What's the negative? What was Deutsche Bank saying?
So Deutsche bank came out with a report, which to be honest, blew me away. They're proposing a tax on employees that are working from home. For the privilege, the privilege, of working from home. Because working from home is a privilege.
So they're trying to recoup the costs. They're not collecting real estate taxes anymore in the office with all the empty office space, and the office leases. They're no longer going to collect that if people work from home. So they're trying to figure out how to get that back.
It's an interesting point, but the report doesn't really speak about that. Their emphasis was, "Hey, you're not spending $400 a month on train passes. You're not spending $5 on the Starbucks frappuccino every morning. Now that you're saving all this money, we're going to tax you. One of their points is to give that tax revenue to other workers making minimum wage.
That is literally redistribution of wealth. They can't even figure out what it is they're taxing. Because of your "privileged" life, let's take more. What about income taxes? What about all the sales taxes that people are already paying? How is that not covered? What are they claiming they're taxing you on?
I don't think they know. I'll put it out there as it sounds like a socialist idea. The old Robinhood story of taking from the rich and giving to the poor. In a nicer way. It's not that someone is paying less tax because they're now working remotely. I believe in the old days, if you worked in New York City you did pay a tax for working in the city. Living outside of NYC, you would pay your local income tax, as well. I haven't heard of that being more widespread. But again, not all the people
All those working from home that are not in management or directors in some tech companies. What about people that are working from home for their first job as a graphic designer or answering phones as customer service rep? How could they justify just adding on another tax to somebody who might not be living a luxurious with a high paying salary? What's the justification for that?
I don't know if it's that misconception of everyone that works from home is making $125,000 regardless of the work you're doing. Of course, there are customer service people making $35,000. There are people who are just able to pay their bills. So now to give them some kind of extra tax for the privilege of not coming to an office. The costs of commuting are being elsewhere. If you're now working from home you don't have the office coffee machine. You now need to buy more coffee for the house and perhaps purchasing a better coffee machine.
So you're making up some of that cost of the coffee that you're not buying at Starbucks while at home. You're probably quite busy at home, and thus not making your own lunch every day. Unless you're eating PB&J's (peanut butter & jelly) for lunch every day. You're probably going to a local eatery and spending money there. Perhaps there's less of a cost because it's not an urban area. Yet, you're still spending the money. You may now need better internet. You could've gotten away with not super high-speed internet, and but now you need it for zoom calls all day. So your costs, instead of transportation, will be spent elsewhere.
If the company offered a gym membership or paid for membership near the office. Now somebody going to their local gym must pay it on their own. In the experience I've had, you're going to recoup all $400-$500 saved on transportation and related costs. It's not going to go in your bank account, making you $500 richer. You will still spend most of that money on something else. You're just moving it in a different direction. The idea of giving the money to urban minimum wage workers is simply shifting the focus right now. A minimum wage urban worker maybe someone who works in a restaurant, as a waiter. Just remember, the people working from home need to eat, right? They're not going to be making lunch for themselves every day. They're going to be going out to a local eatery where a waiter is also making minimum wage. So where's that distribution really going? I'm just still baffled,
How much traction did this proposal have? Where are they looking to implement this?
I think it's still early on. I believe the idea may be in the UK or Germany. From speaking with people I know working remotely in the UK, they tell me Boris Johnson has been adamant to get people back in the office. At least in the city of London. He's afraid of the mom and pop shops in London closing down due to the lack of business.
This further raises the distribution question. So they close down. When remote workers move out to the countryside of England, will the infrastructure needs be there? If you're moving to a new town, you will need more restaurants, more coffee shops, better internet, and those types of things. So the person who owned the coffee shop or the sandwich shop in downtown London will be able to make the same move. Following the migration of tech workers to the countryside, and opening the same sandwich or coffee shop there. So the entire system will replenish and support that move.
That's wild. A lot of friends of mine have moved out. One friend moved to a foresty area in Oregon. You know what? He has a nice cabin house, but bought kayaks and other outdoor gear. I wouldn't say he's living a more frugal, financially savvy life. He's spending money on other things instead of office-related things. A woman near me who's wheelchair-bound and disabled can't really leave the house. It was a lifesaver for her to be able to find a customer service job where she could stay at home and answer phones remotely. It doesn't mean she's living a life where she's got massive savings. She's living a difficult life.
It doesn't make a whole lot of sense to just tax people because they don't have to go into an office; that's wild. I'm old enough to remember when office space went from everyone having their own private office to the open floor model. Everyone sits there crowded around the same table. You're sitting right across from your buddy coding away. They tried to say that this is an open environment would allow people to connect and discuss ideas. We know now that it killed productivity and was too distracting. At the end of the day, companies save money, and it was all about saving money. Even though it hurt productivity, the top-line expense savings on real estate were just big. If companies decide to move more remote, they can look at that real estate savings again. But to pass that burden onto the employees? I don't think anyone's going to get a raise to cover that increased tax.
Yeah, I agree. I think there's no outside besides costs. That the money saved on office space, how are companies missing this? I haven't seen anything yet to date where companies are reporting productivity has gone down. Everything I've seen through COVID, has been the opposite. Many founders and especially those that have moved permanently remote since COVID started, knew the data proving remote works. They were just afraid. When CoVid hit, they expected an oh crap scenario. No one is going to get anything done. The company is going to grind to a halt and we're all finished. Instead what they found was, their team was actually still getting stuff done.
It may not have been at that same level as before the pandemic, but that decrease had with remote. It was that there's a global pandemic going on. Kids were not at school; including my kids were. I think yours, as well, for six-plus months. The kids were bouncing off the walls or hopefully trying to learn on zoom. There was so much going on in the house beside the virus. Of course, productivity was going to take a hit. However, so far the research has seen employees working extended hours. People were taking a hit to work-life balance, giving 1-2 more hours to work since they were able to skip the commute.
There are so many upsides to remote work, it's hard for me to see a necessity to tax that 'privilege.' Just the word privilege to me is baffling. It's a privilege to work from home? The company is saving money, and they're getting more productive and happier workers. It's a win-win all across the board.
Yeah. I don't know. That's complex. The word privilege is loaded. It can mean a lot of different things. I don't know that I like the word in this context because I think that it's a choice. I had a designer on my team a number of years ago who didn't like working from home. She wanted to be in an office to be able to work more closely with other people. She thought she would like it and appreciated some of the benefits, but decided that it wasn't really for her. That's not a privilege. It's more of a choice, even though she was doing good work and we all enjoyed working together. It wasn't the right environment for her.
So I get that. Some people don't like it and some jobs can't be done from home. So maybe in that regard, it's a privilege, but not everybody likes it either. The way I see it, it's simply an option to run your business remotely. I think the future will be a little bit more flexible where some people might just be able to work from home most of the time and come into work some of the time. I think that's definitely something that's going to be more popular coming down the road. I see it as an option for the business itself to decide if this is the way they want to run things. Then there are options to save money and to improve employee happiness. I don't know that I would call it a privilege necessarily, but maybe I'm privileged.
If it is a privilege, I feel privileged for all these years to be working remotely.
The last article I'd like to cover was in the New York Times a couple of weeks back. The focus was on digital nomads, and not being prepared for remote work. I think there's a big misconception of remote. Maybe not as much now since COVID but certainly pre-COVID. There was a big misconception of remote work being the digital nomad. Today I'm on the beach in Thailand. Next week, I'm in Hong Kong. The week after I'll work from a cafe in Rome.
Well, certainly with COVID there's none of that.
I believe less than 10% of all remote workers are digital nomads. Most of remote workers are working from the house or a co-working space or coffee shop. It' wasn't moving states. Due to COVID, that's changed to allow people to get out of San Francisco and get out of New York. Move to more rural areas. In most cases it's not traveling around, it's living in one place.
I used to live in Chicago and commuted about an hour and a half each way into the city loop. I'd take the car to the train. Take the train, and then walk from the train. It was an hour and a half each way. So I was spending three hours a day commuting. When I made the leap to remote I started working for myself doing consulting and I would fly around to clients as needed once in a while. I was generally working remotely. It was a difficult choice to make. It was a scary leap, but when I did it, it was more about getting control over my life to be able to live the life I wanted. To structure my own schedule. I created my own office in my basement which was kind of tiny, but it was my own space. I would work out of the Starbucks, once or twice a week just to get out of my basement and see other people. Just being in a different environment. I was not jet setting all over the place. I have a family and that just wasn't really an option, but it was more about freedom. The control over my own life.
Exactly. At the beginning of Invision, one of the early employees did a six month trip around the US. So every few other days, he drove to another city. I found it fascinating as I forced him to share lots of pictures and of all the places he stopped. Again, that was one person out of an entire company So in this article, the New York Times was trying to paint a negative picture on remote based of digital nomads. For a quick synopsis. It talks about a number of people who tried going to another country during this pandemic to work there and the issues that they ran into with entry visa or returning back to the US. The other part was focused on taxation. People who were working again in a temporary country (not their permanent resident). Perhaps using a remote work visa things in Bermuda for example, being taxed on the income by the United States IRS. Basically saying, if you were going to 'work remotely' you can run into visa and issues.
When again, it's a minute number of people who are doing this. At Invision and other companies I've mentored there definitely been those digital nomads that enjoyed traveling to a different country for a few weeks. How many of them really exist on a team? It's a fraction of the total number of people. So if someone was one that 10% of digital nomads, they should be aware of taxation laws in their permanent country before leaving.
The same for these visas and getting stuck at a border. The article detailed a couple of a US citizen and their engaged non-citizen fiance. The fiance had difficulty re-entering the US. Maybe it's just me or the people I've spoken to, but who hasn't done their research prior to international travel. Knowing where they're going, the visa requirements, and any entry/exit requirements. The message I took out of the piece was now that every company is remote, we're going to go and work somewhere cool. Then COVID got into full flux and chaos hit wherever they were. No one immediately asking, maybe it's probably a good time to go back to the US or whatever the true issue was in the end.
Maybe it was just me, but who goes anywhere without planning these things ahead? Even when you went somewhere and COVID hit, you heard lots of stories of people getting out. Even here in Israel with Israelis trying to get back home. Elal sending special flights to go pick people up in random countries. Even if you were on a beach somewhere, you have access to the internet. I would hope you're able to hear, "Hey, this country that you're in is looking to close their borders due to COVID." So if you want to get out, you need to get out by this time. If looking to get back to your home country, the same information, Hey, the country is looking to potentially close or limit ad limit restrictions from this country or that country. So to based on the percentage of remote workers that fall into this category to painted remote work as broadly was very upsetting to read.
Yeah. I actually most of the people I know that are remote are not traveling everywhere. My last company, Resident, was a little bit bigger than the one before that. So there were a few people traveling. I remember my first interview with them was with someone in Spain. I didn't realize he was actually from New York. He just happened to be in Spain when I spoke to him. So he was more of that digital nomad guy. I think it's less frequent to see the people that go like from week to week in two different places. I do know people that will spend three to six months in two or three places all year round. So they'll hop around. Maybe their wife's family in one place, their family in another, and then they'll have a home somewhere else.
So I've seen that a little bit more frequently. I think that poses a bigger challenge from a tax perspective. Governments don't quite know what to do with it. I don't know if that's a negative about remote working. I think it's more that the government has to kind of keep up with the way technology enables people to move about freely and work from anywhere. I put that pressure on the government, but that does get complicated. I'm sure as you know, I'm an ex-pat. I'm a US citizen and I live in Israel most of the time. So it does get complicated, and there are things I've gotten my Israeli accountant on the phone to argue with my American accountants for. So they can fight it out and figure out what the right thing to do is. You can try your best, but sometimes governments just don't know how to treat certain situations. So that is complicated.
There's obviously a very big difference between relocating as you and I have done. To move from the US to Israel. We live here full-time. This is our full-time residency versus going to travel somewhere even for three months or six months.
I wasn't always staying here all the time. I mean, COVID has kept me locked down a lot. This is the most I've ever been in one spot. I was traveling to New York and Chicago frequently. I spent maybe a couple of months out of the year outside of Israel.
That makes perfect sense. If you go on vacation somewhere for two or three weeks and bring your laptop. You happen to check and reply to an email or close a sale while on vacation, does that qualify, as well? You closed a $100,000 deal selling software while on an Island or beach somewhere. Now, do you have to pay local taxes? Well, you're probably on a tourist visa or no visa at all. You're not paying local taxes. You don't have a national ID. You're not a citizen of that country. Again, the use case is much lower as you're there for a couple of months vacationing.
The beauty of technology and the cloud allows me to do work while on the beach or vacationing versus; I've picked up and sold my house in New York. I'm now living here, though I may be traveling. I know lots of people here in Israel, especially doctors and dentists, that will travel back from Israel to the US every week or two. So they're going back and forth however many times a month. If you ask them, where is your residence? Where do you live? Across the board, everyone will say my main residence is Israel. So again, I think it's, the way they see themselves? I'm living in Thailand for the next six months, or I'm traveling to Thailand for six months, but I live in Ireland or wherever it may be.
This will probably be a big question for governments to decide on. Do you only pay taxes if you are a resident, or a citizen, or have tax ID? Then how to determine timing? You're doing work here for a single day, or for a certain amount of time, thus you need to pay tax. Is it again the opposite?
Maybe we close out the conversation here today that you and I are working for probably eight-plus years remotely. To the cost versus the savings question. It's just a night and day difference of what the potential cost to you as a remote worker currently pay or should have to pay versus the savings that you get or the opportunities that you get.
And so much more for the company, which we'll probably cover in a different podcast. On the employee side, I was just frustrated in the past week with these negative articles. Focused too much on the cost of taxation of digital nomads, or paying for the privilege to work remotely. I think there is so much more benefit that you get out of it financially that these articles and their arguments have no place.
Yeah, I totally agree. I think those are reactionary to big companies and governments who are seeing their tax revenue drop because people are working from home, and they're trying to figure out a solution. I don't think it's justified, but they're trying to figure something out because they're taking a hit.
Yep. Any last thoughts?
No, this has been a great conversation, Scott. I wonder if we could leave those links in the show notes.
Yeah. I'll put the links to the three articles used for today's conversation in the show notes. For anyone currently working remotely and thinking about making it permanent, the benefits are going to outweigh the hypothetical costs that you're going to pay. I'm not a tax lawyer, so please talk to your own tax lawyers or lawyers about visas.
I'm curious about our listeners out there. If you've seen expenses go up or down in any certain way, or if you've been able to travel and work, or have found yourself traveling more because you're remote, we'd love to hear your stories.
Yes. Please drop us a line. And Tevi, thank you so much for the conversation tonight. We'll speak again in the next episode.
Thanks Scott. Talk to you later.