Summary: Every time a business hires employees, relocates, or expands into a new state, they are making a tax decision, whether they know it or not. From capturing job creation credits to managing multistate payroll compliance, workforce moves can result in real financial consequences. Aprio advisors Scott Schapiro, Shazan Rizvi, and Judy Vorndran break down what businesses need to know before the next major workforce decision.
Hiring a new employee in another state feels like an HR decision. Opening a new facility feels like a real estate decision. But every time your business moves people or expands into a new geography, there’s a tax event waiting on the other side.
That’s the central message from Aprio’s recent Workforce Matters webinar, where Scott Schapiro, a partner focused on federal, state, and local employment taxes; Judy Vorndran, a partner in Aprio’s state and local tax (SALT) practice; and Shazan Rizvi, director of Aprio’s tax credits and incentives practice, walked through the tax opportunities and compliance obligations that accompany workforce decisions.
Whether you’re adding ten employees or 300, entering one new state or expanding into 30, the financial stakes may be higher than most companies realize.
What Tax Credits and Incentives Are Tied to Your Workforce Decisions?
Most companies assume workforce-related tax credits and incentives are reserved for Fortune 500 companies making splashy announcements. They’re not.
“Most of the companies I work with believe they’re leaving money on the table,” Rizvi shared during the webinar. “It’s not because they’re doing anything wrong. It’s simply because they don’t know what to ask for, or how to ask for it.”
In most states, workforce-driven incentives exist in several forms. Job creation tax credits reward companies for adding headcount in designated areas. Training grants provide funding, sometimes in millions of dollars, to help offset the cost of employee development. Enterprise zones offer additional benefits for companies to relocate in communities targeted for economic revitalization. And payroll withholding incentives let businesses retain a portion of employee withholdings for a set period. These programs are mainstream but they’re often underutilized.
The key to capturing workforce-related credits comes down to four factors:
- Headcount: Commit to what you can realistically deliver. Overly optimistic headcount commitments can turn an incentive into a liability through clawback provisions. A manufacturer Rizvi worked with committed to 250 jobs, came in at 140, and received a $1 million-plus clawback with interest.
- Location: Where employees sit geographically can open or close off state and local credits. Moving one mile can mean the difference between qualifying for an enterprise zone credit and missing out entirely. Rizvi shared an example where a company moved into a neighboring state to unlock a tax abatement, a $2.5 million grant, and a $6,000-per-job tax credit, a package that offset roughly 40% of their first-year costs.
- Timing: Consider and secure incentives before you move your company. Once you’ve signed a lease or publicly announced a location decision, your negotiating leverage shrinks. States are less likely to offer incentives to companies they know are already committed.
- Compliance: Incentives come with reporting obligations, headcount maintenance requirements, wage certifications, and sometimes clawback provisions. If your organization isn’t prepared to document and comply, an incentive can become a liability. A private equity–backed company Rizvi cited committed to 300 jobs, ended up with 80 hires after 18 months, and never built the workforce to fulfill the commitment because there was no recruiting pipeline, no community partnership, and no workforce plan in place.
Some incentives are statutory and regulated while others are discretionary and need to be negotiated. Availability also shifts with political cycles. Southeast states like South Carolina, Georgia, and Tennessee have been particularly aggressive in offering incentives in recent years. Today, states are increasingly targeting data centers and AI-related projects as areas of focus.
For more on how to capture and maximize tax incentives, see Take the Credit: How to Maximize Your Business Value Through Strategic Tax Incentives.
What Are the Compliance Risks of Hiring Remote and Multistate Workers?
The opportunity side of workforce moves gets a lot of attention. The compliance side may catch companies off guard.
“A lot of times I get a one-off call from a client, we’re opening an office and moving an employee to Arizona — can you open a tax account for us?” Schapiro explained. “That’s the easiest thing to do. The hard part is figuring out all the other issues involved.”
Opening a payroll tax account is just the beginning. Once your business has an employee in a new state, you’ve potentially created nexus, a taxable presence that triggers income tax, sales tax, and other filing obligations. Vorndran described a New York–based software company that, after COVID sent employees home across the country, found itself registered in roughly 30 states, with payroll, income tax, sales tax, and business personal property filings all to manage.
Payroll and employment taxes
Each state has its own requirements for employer registration, unemployment insurance taxation, state and local income tax withholding, and increasingly, paid family and medical leave. Minimum wage rates, overtime rules, pay stub requirements, and the treatment of taxable vs. non-taxable compensation all vary by jurisdiction. As of 2027, Maryland will join the growing list of states with paid family and medical leave requirements, bringing the total to at least 14 states, plus the District of Columbia.
For a detailed breakdown of how state requirements differ, see Navigating the Patchwork of State and Local Paid Family and Medical Leave Requirements.
Independent contractors
Several states, California, New York, and Massachusetts among them, apply aggressive standards when classifying workers as independent contractors. Having contractors in those jurisdictions creates real risk if they function like employees in practice. Some states require Form 1099 reporting at the state level as well, adding another compliance layer for companies that rely on contract labor across state lines.
The “work from anywhere” problem
Work from home and work from anywhere are not the same thing. A remote employee who works from a fixed location creates a known, manageable compliance obligation. An employee who works from wherever they happen to be on a given day creates a moving target and potential withholding issues across multiple states, simultaneously.
See The “Work from Anywhere” Era and the Implications on Employment Tax for more on how to manage this exposure.
The PEO misconception
Many companies using a professional employer organization (PEO) assume the PEO absorbs their compliance responsibility. It doesn’t. “All you’re offloading is the mechanical provisions,” Schapiro said. As the ultimate employer, you remain responsible for the taxes, and for any errors. That includes local-level obligations that some PEOs overlook, like occupational privilege taxes applicable in several Colorado cities.
Personal liability for officers
Employment taxes carry a fiduciary obligation. If payroll taxes go unpaid or are deposited incorrectly, state and federal authorities can pursue company officers personally. Schapiro described an IRS agent appearing at a CEO’s office over payroll deposits made to the wrong account, not a dollar-and-cents problem, but a compliance failure that escalated because notices were ignored.
How Should You Build a Proactive Approach to Workforce Tax Planning?
The common thread across all these issues is timing. Most of the problems and missed opportunities described in this webinar happened because tax wasn’t part of the conversation early enough.
Cross-department collaboration is essential. Operations, real estate, and HR should work with tax and finance when making workforce decisions. “Consider tax compliance as part of your business plan,” Rizvi said. “We want it to be part of your playbook.”
Survey results from the webinar reflected progress: 52% of participants reported that tax is involved in workforce decisions before they’re made. But 38% said their organizations typically address issues only after receiving a notice from a taxing authority.
A practical framework for any workforce move should prompt these questions before decisions are made:
- Before hiring or relocating: What state and local tax obligations will this create? Are there credits or incentives worth pursuing?
- Before signing any lease or announcing a location: Have we secured available incentives? Have we preserved competitive negotiating leverage?
- Before using a PEO or third-party payroll provider: Do they know about all applicable local taxes in the relevant jurisdictions?
- Before allowing remote or “work from anywhere” policies: Do we understand the nexus implications, and do we have a way to track where employees are working day to day?
The Tax Foundation publishes state tax comparison maps that provide a useful starting point for understanding how different states stack up on income, sales, and other tax obligations. But understanding how those obligations interact with your specific workforce, operations, and structure requires a holistic review, not just a payroll account.
Final Thoughts: Treating Every Workforce Move as a Tax Event
Workforce decisions are tax decisions. The upside: credits, incentives, and strategic tax savings are real considerations and often go uncaptured. The downside: compliance gaps, penalties, and personal liability are also real and preventable.
The advisors who can help you see around those corners should be at the table before the lease is signed, before the announcement is made, and before the first remote hire is approved. Reactive compliance can be much more costly than proactive planning.
