The perils of remote working (and why I need a new job)

12 Jun 2015

When you're new to remote working, it's easy to miss some of the most important things that you need to sort out. For instance, organising your health insurance or setting up your tax payments correctly.

I've recently had some experience with what happens when you do miss—or set up incorrectly—these essential trivialities of remote working. In short, you quickly realise they're not so trivial after all.

In the 2013-14 financial year (July '13 - June '14) I worked a well-paid, full-time, remote job for a company based in the USA. Because they're not Australian, this company isn't required to set aside income tax for me, or to pay money into my superannuation fund before doling out my earnings. They simply wired my gross income straight to my bank and let me handle the rest.

Had that company been based in Australia, they would have handled my tax and superannuation for me, as required by law. And I wouldn't be in the midst of heated negotiations with the tax department about the $20,000 I owe them but can't afford to pay.

But let me back up and explain how I suddenly found out I owe the government tens of thousands of dollars and why I didn't pay it earlier.

One of the most frustrating things about this story is that no one's really to blame. Nobody did anything wrong on purpose throughout this whole story, and yet I've ended up in a horrible situation at the end of it.

Before I worked for this American company, I spent around 18 months working for an Australian-based company. This Australian company paid me as a contractor even when I was full-time (pretty sure that's against the law, but I didn't know any better at the time). This meant that they didn't withhold tax or pay my superannuation either, even though they're Australian and so am I. Since I was technically a contractor, they got out of these employee requirements.

During that financial year I didn't pay any tax. My employer wasn't withholding any for me, and I didn't know how to pay it throughout the year (we call that Pay As You Go, or PAYG, but I didn't know anything about it at the time). I also didn't have much disposable income to pay tax with because my hourly rate was much lower then.

At the end of that financial year (2012-13), just before I started my new, well-paid job at the U.S. company, I went to see a new accountant. He told me how much tax I owed and I paid up, making good on not having paid any tax throughout the year.

Now here's where things went bad. The following tax year I started working for an American company who paid me more than double what I earned the year before. The tax department, correctly assuming I still wasn't having tax withheld from any employer, sent me a PAYG form every quarter.

The form was pretty simple. It asked me to report how much income I made for the quarter, then told me to write down what 9.53% of that income was. This was the amount of tax I owed. Each quarter I dutifully completed the form, reporting my entire income, and paid the 9.53% that I owed the tax department. By the end of the year I had paid around $5,000 in tax.

The problem was, the more you earn, the higher the percentage of tax you pay. The tax department told me to pay 9.53% tax because they based their estimations on the previous financial year, when I was in the lowest tax bracket because I didn't earn much. But on my new U.S. company salary, I was making enough to pay tax in a much higher bracket. I needed to pay closer to 30% tax on the income I earned.

I had no idea about this. And maybe you'll think I'm naïve for not having all the information about how taxes work, but when you've always worked for an Australian employer who handles tax and superannuation, leaping into the world of freelancing and remote working can mean you miss things that are important to know. For instance, I didn't know there was an online calculator I could use to check how much tax I should be paying based on my income, or that I should use this calculator to make sure I paid enough. I naïvely trusted that the tax department knew how much tax I should pay and that if I followed the instructions on the forms they sent me, I would be doing the right thing.

The next thing I heard was the tax department demanding I pay $20,000 that I apparently owed them when I completed my tax return. Between waiting for my accountant to find the time to do my tax return and my documents being forgotten on the accountant's desk, it took me so long to find out about this debt that I only had a couple of weeks to negotiate a resolution before it was overdue.

And then came the negotiations. The tax department lets you set up a payment plan to pay off your tax debt over time if you can't afford it immediately. Since Josh and I have both been working only just enough to pay our bills so we can spend as much time as possible on Exist, I couldn't even pay a small amount of the debt immediately. Although I was frustrated about the situation, I thought dealing with a payment plan for five years would solve the problem, and I could try to pay it off faster once Exist was paying me a full-time salary, so it might not even last a full five years.

Unfortunately, the tax department didn't see it that way. They wanted their money fast, and they didn't seem to believe that I had no way to pay them. They also seemed to think that because I earned enough money to be charged more than $20,000 in tax, I should still have all that money. I didn't, because I left my job with the U.S. company after 9 months—a full year before I found out about the debt I owed—and switched to freelancing just enough to get by, while living off the leftovers of my income from working full-time. Once that money ran out I started living more frugally because I wanted to keep working as little as I could get away with to afford more time to work on Exist.

I told this to my accountant, who initiated negotiations with the tax department on my behalf in order to set up a payment plan. I also told her the balance of my bank account (less than $500 at the time), and my average income for the past six months (just under $3,000/month). Armed with all this information, my accountant spent many fruitless hours (though not for her, because I'm paying her a fortune per hour) on the phone to the tax department with no luck. The tax department wanted me to pay much higher monthly payments than I could afford—they wanted over $1,000 a month, when my current disposable income is around $300 per month.

Phone calls and emails from my accountant were becoming more and more stressful, as she told me the tax department were demanding she give them my bank details, they were refusing all my attempts to set up a payment plan, and that in the worst-case scenario they could bankrupt Hello Code if I didn't pay the debt. Never mind the fact that I was trying to pay it. I wasn't offering to pay it fast enough, so they weren't interested.

I have no assets to sell, no chance of getting a personal loan on such little and volatile income, and no family money to ask for. Finally I talked to my dad, who suggested a list of options I could pursue to sort this out. I started by calling the tax department myself, taking the accountant out of the equation, and thankfully didn't have to go any further.

I did, however, spend an entire day on the phone to the tax department.

My first call of the day starts at 9:44am with an automated menu. After some identification, the menu voice says "I now need to ask for your bank details". Remembering that my accountant told me the tax department wanted my bank account details and could even take money out of my account whenever they liked to pay off my debt, I hesitate. Finally, the menu voice says I can skip this step. I do.

Next, menu voice wants to enrol me into a voice recognition program for faster identification in the future. It tells me my voice will be recorded and my voice ID will be stored at the tax department and may be given to other government agencies. Ha. I refuse.

I finally get through to a human. I speak to Tamika, who tells me my full debt is $20,259.75. She also tells me I have around $4,000 outstanding tax from last quarter (that is, the current financial year, not the year I owe the $20k from).

When I ask why my request to alter that $4,000 payment to zero (because my income was much lower than expected) had not been processed, Tamika says she doesn't know. Her best guess is that I didn't sent the form back quickly enough. She explains how I can process the revision online, and puts me through to someone called Chris to discuss a payment plan for my $20k debt. Before saying goodbye, Tamika tries to enrol my voice ID. I refuse.

According to Chris, he can't set up a payment plan until I've completed the revision on this outstanding $4,000 payment. Chris says I need to get that sorted before calling again about a payment plan. He also warns me I have ten days left before the $20k debt will become overdue.

Before saying goodbye, Chris tries to enrol my voice ID. I refuse again.

At 11:43am I call again, because the online revision Tamika had suggested isn't working. I speak to Sam, who tried to process it on his end with no luck. After trying to enrol my voice ID, of course.

Sam says he can put me through to the Activity Statement Exception Area where they can process it over the phone due to the exceptional circumstances (i.e. the tax department's system isn't working) but he can't find their number because "part of the system is down".

He tells me to call back later today.

At 2:16pm Michael tells me he can't put me through to the Activity Statement Exception Area because they're too busy. He gives me their direct number and tells me to call them later.

I finally get through at 2:45pm and speak to Rowena. After some discussion (and refusing voice ID enrolment—are there bonuses for the most voice IDs you capture or something?), Rowena varies the $4,000 payment to zero for me and I log in to confirm it's showing as "processed". Rowena transfers me to another department where I can finally set up my payment plan.

I'm put on hold by this department for a few minutes before the call drops out. I call back with the number Rowena gave me (in case it drops out, she says), get put on hold, get cut off. This happens again before I finally get through to someone called Chris—though he says he's not the Chris who I spoke to earlier. I'm relieved, because he seems a lot more understanding than the first Chris I talked to. I'll let you guess what Chris asks me to do first.

It's now 3:41pm and I ask Chris to set up a payment plan for $700 per month. My accountant has already been told this amount (and all of my previous lower offers) is too low, but out of my $2,900 average monthly income, this is a significant enough chunk to make my living situation tough. I'm already thinking about finding more clients and cutting back the time I spend on Exist to pay this debt, so I can't afford to pay more than $700 per month.

But Chris won't accept $700. That would take me 31 months to pay off the debt, he says, and he can't authorise a payment plan that takes longer than 24 months.

I run Chris through my income and expenses, my current bank balance (he asks which bank this account is with, but I refuse to tell him). I explain why I didn't know about the debt earlier, and how it was an honest mistake that put me in this mess in the first place. Chris seems understanding, but unable to help much. He puts me on hold to check something, and after about a minute the call drops out.

It's 4pm. I wait two minutes in case Chris will call me back (Rowena did earlier when our initial line was bad, so you never know). At 4:02pm I call back, refuse the menu voice's insistence on taking my bank details and recording my voice, and eventually talk to Linda.

I explain that I was getting somewhere with Chris before we got cut off, but apparently I'm stuck with Linda now. She says we'll need to start all over again.

First, Linda wants to check that my email address is up-to-date, because that's really paramount right now, isn't it. Then she says, "I see you've opted out of the voice ID enrolment—did you want to do that now, or...?" No, Linda. No, I DO NOT WANT YOU TO RECORD MY VOICE.

Linda starts out nice...ish. She gets testy as the call goes on and she grills me about my situation. I run her through the same numbers I gave Chris: my average income, my average expenses, my inability to sell assets or take out a loan. Linda isn't convinced that I don't have the owing $20,000 stashed under a mattress, and asks sternly where the money went that I made in my full-time job. I explain, and go over the honest mistake that got me this debt in the first place.

Next she grills me about my current job. Do I have a job? Yes, I'm a freelancer. What do I do? I'm a writer. A writer. Hmm. She's not impressed with that. How much do I make per month? I tell her again. Hmm. Will my income increase soon? I say I hope it will, and I'm already courting new clients (this is true) but I can't guarantee anything because I don't know.

Nope, she's not having it. Linda is saying $700 per month is not enough, and she's going to have to reject the payment plan I'm asking for. Apparently the tax department doesn't want their money enough to accept the absolute maximum I can afford to pay right now.

But she doesn't outright reject it yet. Linda keeps clicking away at her computer, but she's not telling me much. There's a lot of waiting while she clicks and thinks. Eventually she asks if I could pay more per month after six months if I start with $700 monthly payments. I agree that I could, because that will give me time to get a full-time job or take on more client work. She says "hmm" again, and then, "I'm not saying I'll accept that. I don't know if we can do that. I'm not offering you a payment plan, I'll have to run some numbers."

More thinking and clicking. At this point I'm starting to think Linda's going to turn me down and I'll have to try another approach. Since I'm just waiting for Linda to speak to me again, I spend some time searching the web for my next options. I find some information about complaining to the tax department directly that says I need to first try to sort out the problem with the tax officer I'm dealing with (that'd be Linda), then complain to that person's manager, and then I can file a formal complaint.

I prepare to explain to Linda that I'm ready to file a complaint and would like to speak to her manager as per the complaint instructions (as I write this I can feel the adrenaline pulsing through my veins as I relive the stress of the situation). I also have the contact details handy for the Commonwealth Ombudsman, who "safeguards the community in their dealings with Australian Government agencies", and will be my next stop in filing complaints.

It's nearing 5pm, so I hope she makes up her mind quickly. I expect all these complaints departments will be closed soon.

But the next time I hear Linda speak, she finally offers me a payment plan. For six months I'll pay $700/month. After that I'll pay $1,500/month for the next year. And then the debt will be gone. She's more than doubling my payments after the first six months, but at least she's offered me something. I agree.

Over the lifetime of the plan I'll pay $1,086.28 in interest.

And just like that, just before 5pm, it's done. Only it's really just begun.

My first step is to take on more client work so I can pay the $700 payments, which start at the end of June. But already I'm looking for full-time work. Exist is going to suffer by losing almost half of the person hours we have to work on it, but with a full-time job I'll have this debt paid off in 18 months.

As I said, no one's really at fault here. The tax department was lacking in compassion and treated me like I was trying to avoid paying my taxes, rather than someone who tried to do the right thing, thought they were doing the right thing, and was agreeing to pay the debt off as fast as they could physically manage.

But they didn't really do anything wrong.

It would have been really helpful if they made a note on the forms they sent me that suggested double-checking how much tax I should pay with the online calculator. They obviously know that a big change in income will make their estimations wrong, and they clearly don't look at the PAYG payments or forms that come in throughout the year, so a little heads up that I could have double-checked the amounts myself (and should have done so) would have helped me to avoid this whole issue.

I thought about mentioning the idea of educating people better about income tax, but I earned the highest possible award for a subject I took in high school called Managing Your Money. Either that subject taught me nothing about tax, or I forgot it all because it was irrelevant to me at the time. Either way, I'm not sure I'm the person to be advocating for tax education.

I do think there's a big lesson to learn here for remote companies, which are becoming more fashionable. To be clear, the U.S. company I worked for did absolutely nothing wrong. But they're also really keen on looking after their employees, so I think they could help future employees avoid situations like this.

I think a good way for all remote companies to look after their employees, especially any who are new to remote working, which comes with its own idiosyncracies in terms of laws and taxes, would be to pay for a single consultation with an accountant in the employee's home country.

Any accountant who knew my situation would have looked at how much income I was earning and how much tax I was paying and known immediately that it wasn't right. That stuff is so simple for an accountant, that for a couple of hundred dollars when I started that job, I could have saved myself the trouble of negotiating with the tax department and fearing they might bankrupt my company (nobody at the tax department ever mentioned those severe measures, by the way, so either my accountant embellished the worst-case scenario, or it was just far less likely than she made it seem).

Remote companies are funding equipment, insurance, travel, and all kinds of health and entertainment perks for employees. They can certainly afford to fund a one-time accounting consultation, and I think it would be worth it to avoid the kind of headache and upheaval this situation is causing in my life at the moment.

One last note: if you want to hire me, I'm exploring full-time and part-time employment options at the moment. Send me an email if you want to chat further.