States Issue Income Tax Guidance on COVID-19 Telecommuting

States are starting to issue income tax guidance on the impact of employee telecommuting during the COVID-19 emergency. This includes guidance on the impact to employers on: 

Does COVID-19 Telecommuting Create Nexus?

In normal times, employees who telecommute from a home office on a regular basis will create nexus for their employer in most states. But several states announced they will not assert nexus on this basis during the COVID-19 emergency. Those states include: 

  • Georgia 
  • Indiana; 
  • Maryland; 
  • Massachusetts; 
  • Minnesota; 
  • Mississippi; 
  • New Jersey; 
  • North Dakota; and 
  • Pennsylvania. 

Likewise, the District of Columbia will not assert nexus on this basis. 

Does COVID-19 Telecommuting Change Apportionment Rules?

All states and the District of Columbia have corporate income tax apportionment formulas. A taxpayer must use the rules to assign income to the various states where it is doing business. 

In many states, the apportionment formula contains a payroll factor. Taxpayers must include income from services performed by employees in the payroll factor. 

Employees telecommuting during the emergency will not increase an employer’s payroll factor in: 

  • Massachusetts; or 
  • North Dakota. 

Employees at temporary work locations also will not alter apportionment rules in Mississippi. 

Do COVID-19 Telecommuters Trigger Withholding Obligations?

Employers with a place of business in a state must withhold income tax from employee wages if they are subject to federal withholding. State income tax withholding requirements apply to both resident and nonresident employees. 

A few states are providing relief from withholding for employees telecommuting due to COVID-19. Out-of-state employers will not need to withhold for employees who temporarily work from their homes in: 

  • Georgia; 
  • Massachusetts; 
  • Maryland; 
  • Minnesota; 
  • Mississippi; and 
  • New Jersey. 

Employers in Maryland, Massachusetts, and Pennsylvania must continue to withhold for nonresidents: 

  • who worked in the state before the COVID-19 emergency; and 
  • who are performing that work at their home in another state during the emergency. 

By Tim Bjur, J.D. 

Wolters Kluwer is by your side to help you stay up-to-date with tax and compliance changes and support your ability to work remotely. Please visit our Coronavirus (COVID-19) Resource Page for Tax & Accounting Professionals.

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