by: Carolyn Bourgoin, CPA

Massachusetts issued temporary guidance providing tax relief where an employee is working remotely in the state due to the COVID-19 pandemic. A recent technical information release (TIR 20-10) issued by the Department of Revenue provides that the presence of one or more employees working remotely in Massachusetts will not by itself create a withholding responsibility with respect to that employee if the remote work is due to any one of the following:

(1) a government order issued in response to the COVID-19 pandemic.
(2) a remote work policy that an employer adopts to comply with federal or state guidance or public health recommendations relating to COVID-19,
(3) a worker’s compliance with quarantine requirements due to a COVID-19 diagnosis or suspected diagnosis, or
(4) a worker’s compliance based on a physician’s advice due to a worker’s COVID-19 exposure.

For businesses, wages paid to a non-resident employee who, prior to the pandemic, was performing services in Massachusetts, but who is now telecommuting will continue to be treated as Massachusetts source income subject to income tax and withholding. The information release further provides that while it is in effect, the presence of one or more remote workers in the state due to the COVID-19 pandemic will not automatically create a Massachusetts sales and use tax collection responsibility or a corporate excise tax filing responsibility. These provisions are effective until the earlier of December 31, 2020 or 90 days after the state of emergency in Massachusetts is lifted. Employers must maintain written records to substantiate the pandemic related circumstances that caused an employee to fall under the TIR’s provisions.

Massachusetts issued its temporary guidance with the understanding and expectation that other states either have adopted or are adopting similar sourcing rules. However, similar to the relief provided in the Senate bill discussed earlier, it would be prudent for an employer to still review the guidance of the respective state(s) and localities where their remote workers are performing services

New York: New York is one of five states that has a “convenience of the employer rule,” that treats as New York wages any compensation earned by employees of a New York company while they are working outside the state. Under this rule, the wages of a telecommuter could be sourced to both New York and the telecommuter’s resident state, requiring payroll withholdings for both states. A bill was introduced to the New York Senate in May that would offer relief to businesses by exempting the non-resident employee wages from New York income tax and withholding requirements for a specified amount of time. However, as of the time of this article, the New York Department of Revenue has remained silent on its position regarding these matters.

Connecticut: Connecticut is another state with a “convenience of the employer rule”. However, the state only applies this rule in determining Connecticut source income of residents of states that also apply the “convenience” rule. Otherwise, wages are sourced to Connecticut based on the portion of services performed within the state. The Connecticut Department of Revenue has not issued any form guidance to date but did respond to a state survey this past May regarding telecommuting due to the COVID-19 crisis. The agency replied that it was working on guidance that would ensure “fair and equitable treatment” to both its individual residents and Connecticut based businesses.

Rhode Island: Rhode Island has issued formal guidance similar to that of Massachusetts providing that the presence of one or more remote workers in the state due to the COVID-19 pandemic will not automatically create an income tax filing responsibility and sales and use tax collection responsibility. Wages paid to a non-resident employee who is now telecommuting will continue to be treated as Rhode Island source income subject to income tax and withholding.

Businesses with telecommuting employees in other states must check to see if those states offer tax relief from withholding taxes, income tax nexus and sales and use tax filing obligations created by these remote workers during the COVID-19 health crisis. Unfortunately, there is no set time frame or requirement that states issue such guidance. Passage of the Remote and Mobile Worker Relief Act would help to remove some of the uncertainty surrounding the tax treatment of these workers. Employers in the meantime are left to monitor potential changes to state tax laws where their remote workers are located during the COVID-19 pandemic to determine whether they have relief from tax filings in the telecommuting state.