Working from home has become the new normal this year due to the impacts of the COVID-19 pandemic. With numerous individuals remotely working in a state that differs from their office, many states have had to rethink the taxation process for both employee and employer. Recently, new guidance around income tax withholding for employees and business tax nexus for employers has been issued in various states to address the new remote work environment. In this post, we will discuss what these new tax guidelines entail at a high level.
Income Tax Withholding Guidance
Many states have issued guidance around income tax withholding for nonresidents that worked in the state before the pandemic. In October, Massachusetts stated that nonresidents who worked in the state prior to COVID-19 will continue to be treated as a source of income, thus subject to personal income tax. Their guidance clarifies that the nonresident may apportion their income to either the percentage of days worked in the state from January 1 through February 29, 2020; or an apportionment percentage based on the employee’s 2019 tax return.
Also, in October, the state of New York clarified its position on income taxation for nonresidents working outside the state for the pandemic. The guidance states that those whose main office is located in New York and who have been working remotely through the pandemic should consider those days worked in the state unless their employer has an office in their state of residence.
States such as Maine, Georgia and Pennsylvania have determined that income tax withholding requirements will not change during the time that employees are working remotely.
Business Tax Nexus Guidance
Employers have also been immensely impacted due to the longevity of the pandemic. Many face additional business tax filing obligations because of their employees working remotely in areas where they do not have a physical location or other nexus. For employers with employees working outside their nexus, over one-third of states have issued guidance temporarily suspending sales and use tax and/or corporate income tax nexus thresholds. Some states such as South Carolina and Massachusetts have their nexus waivers through the end of the year. Others, like Pennsylvania, have extended their waiver through June 2021, or 90 days after the state of emergency proclamation is lifted. States such as California, have yet to provide a waiver end date.
COVID-19 has brought countless complications to the structure of our society, including the taxation process. With many states grappling with the impact of the pandemic differently, it is no surprise that new guidance and tax procedures have been put in place on a state-by-state basis. It’s crucial now more than ever to stay up to date on tax policies to be sure that you and your business are prepared for whatever lies ahead.
If you have any questions regarding these changes, BerganKDV is here to support you. We can offer you a complimentary nexus study to help you stay on top of your state’s tax laws, or you can contact your trusted advisor. Not sure of your next steps? Start here.