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Telecommuting Tax Guidance in the COVID-19 Era

November 19, 2020

Are you working from home? This creates some unique tax issues. Here’s what you need to know.

Due to COVID 19, many employees are working remotely from their homes. What kind of tax issues does this create? We explore here.

What tax issues are associated with telecommuting?

Under normal circumstances, this would create issues for corporate income tax nexus, employee payroll withholding taxes and unemployment taxes. These taxes are normally tied to the state in which the employee works. Thus, when working onsite at your company, said taxes would be due and payable in the state where that office was located, regardless of where the employee lived.

When an employee works from home, unrelated to the pandemic, the employer would be considered to have nexus in that employee’s resident state, and would be required to file a corporate income tax return and withhold state income taxes, if applicable, from the employee’s wages.

What additional challenges does COVID-19 present?

With the advent of telecommuting due to COVID 19, many states have issued emergency guidance stating they will not exert nexus and will not consider income earned while telecommuting as in-state sourced income. Thus, in the states that have passed temporary COVID 19 rules on the subject, the wage income will be sourced to the employee’s normal place of business.

MA and RI

The State of Massachusetts has issued guidance stating this emergency provision will remain in effect through December 31, 2020. The State of Rhode Island will follow this guidance for the duration of the State’s coronavirus state of emergency. Many other States have issued similar guidance.

If you are unsure how your employees’ telecommuting impacts your company’s State tax filing requirements, let us know. We’re here to help!

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