Tax Implications of Working Remotely During COVID-19

With COVID-19 forcing stay-at-home orders in many states, companies have allowed their employees to telecommute from their home offices. Under normal telecommuting circumstances, business entities are required to file taxes when they have established nexus, a direct or representational presence within a particular state or jurisdiction. In most cases, payroll withholding taxes are based on the state in which the employee performs their work.

Several states have decided to waive their assertion of nexus for the duration of the COVID-19 crisis. The waiver applies to employees who are temporarily telecommuting for reasons of public health and safety. States issuing guidance include Georgia, Indiana, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, North Dakota, Pennsylvania and the District of Columbia.

As the pandemic continues, more states are likely to issue guidance in the coming weeks on nexus requirements and telecommuting. Companies are advised to check for tax updates for the states in which they operate or where their employees reside.

Exceptions Under “Convenience of the Employer”

Some states allow companies to source the wages of telecommuting employees to the employee’s primary office location (and state). The “Convenience of the Employer” rule generally applies when the telecommuting employee lives in a different state than their primary office location, but spends some time at the office. Connecticut, Delaware, Nebraska, New York and Pennsylvania follow this rule.

At present, states have not issued waivers or other changes to this rule for COVID-19 but companies with operations in these states should be mindful that the COVID-19 emergency may drive future revisions for income withholding.

For additional information on the tax implications of working remotely, please contact your ALL tax advisor or call us at 617-738-5200.