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I read in the news (mirror):

[Facebook] would take a more “measured approach” with existing employees based on job function and past performance, he said, and set a January 1, 2021 deadline for staff to update the company on their new locations for tax purposes.

Similarly, I read on CNBC (mirror):

“We’ll adjust salary to your location at that point,” said Zuckerberg, citing that this is necessary for taxes and accounting. “There’ll be severe ramifications for people who are not honest about this.”

Why does a US company need to know the location of their employees for tax purposes?

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    Slightly challenging the question: Facebook is not (just) a US company. It has businesses presences all over the world, and it's not necessarily the case that a company incorporated in the US, which does business in country X (perhaps via a subsidiary, but still does business), can employ US citizens resident in country X, but ignore X's tax regime in favour of the US's. If Zuck doesn't make a reasonable effort to find out and meet his actual tax obligations (including payroll deduction) in all the countries his employees reside, then country X might come for him. – Steve Jessop May 26 at 17:11
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In addition to the information in Andrew Timpson's answer, it is important to understand that the information is critical for the employer itself. A company with even one employee in another state is frequently considered by the other state to conduct business in that state. The employee's location may be considered a branch office of the employer; employer provided property (such a laptop) is considered employer property in that state and may be subject to sales/use tax. As a foreign (i.e., out of state) employer doing business in that state, the employer will have to obtain from that state a qualification to do business there, file tax returns, pay various state mandated benefits, etc.

And, in some places (such as New York City), the whole approach is again applied at the local level.

Frequently, it's a major PITA to comply with those requirements, which is a reason employers try to avoid getting into that situation to begin with. That, incidentally, may be one of many problems with allowing employees to work from home on a regular basis.

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US employees are taxed based on where the work occurs. Each state has its own tax rate, and in some cases individual cities have income taxes as well. Companies need to know where their employees are working so they can perform the necessary tax withholdings, and remit them along with W-2 data to the appropriate authorities in each locale.

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  • Thanks. What happens if a company doesn't perform tax withholdings and communicate W2 in the state the employee is located, e.g. if the employee changed state or moved outside the US? – Franck Dernoncourt May 25 at 20:57
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    The employee will be required to pay the full amount when filing their annual tax returns (depending on the state, this could be up to 13% of their gross income for the year). They may also need to pay an additional penalty for underwithholding. – Andrew Timson May 25 at 21:03
  • Thank, wouldn't the employee receive the amount that the employer withhold? Also does the employer incur any penalty or other trouble? – Franck Dernoncourt May 25 at 21:05
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    If the employer withheld nothing, then the employee got that money in their paychecks as they went along. If the employer withheld taxes for the wrong state, the employee would need to file a return with the incorrect state to get the money refunded (meaning they'd need to file two state returns for the year). Whether there's a penalty for the employer would depend on the state, as well as whether the employer has any physical presence there. (My state's website doesn't list any penalty details that I can find, just the requirement for withholding if the company has a physical presence.) – Andrew Timson May 25 at 21:12
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Although it doesn't answer your literal question I think it is important to note that in the specific example you are citing, Facebook wants to adjust/lower the salary of an employee according to the cost of living in their locale.

This is briefly touched in one of the articles you quote but more clearly in some other articles, for example https://www.nasdaq.com/articles/facebook-embraces-remote-work-but-salaries-will-reflect-local-cost-of-living-2020-05-22 (mirror). This might be main reason for "the severe ramifications for people who are not honest about this".

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  • Yeah, note that they're likely to lower your salary even if you stay in California, but move to a tiny town instead of living in Silicon Valley. – JonathanReez May 26 at 23:59
  • Thanks. From the linked news article "Vowing to be the "most forward-leaning company on remote work," the tech stock CEO said Facebook is aggressively opening up remote hiring" -> I think they're already beaten by Twitter! Twitter, Square Announce Work From Home Forever Option (mirror). – Franck Dernoncourt Jun 1 at 21:47

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