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Telecommuting Can Be Taxing

By Carolyn Bourgoin and Lisa White

In response to the COVID-19 pandemic and the related public-health concerns, many businesses have implemented work-from-home (WFH) arrangements for their employees. Whether due to government-mandated shutdowns or voluntary efforts of employers to protect workers, there has been a significant rise in telecommuting that continues even as some states begin to relax restrictions.

Carolyn Bourgoin

Carolyn Bourgoin

Lisa White

Lisa White

Businesses with telecommuting workers need to evaluate the potential payroll and business-tax consequences created by those employees working from home in states where the business would not otherwise have a taxable presence.

Though most states have existing guidance addressing telecommuting for both businesses and workers, the unusual circumstances created by the COVID-19 pandemic has necessitated the need for states to revisit these rules. Unfortunately, there is also little uniformity among the states in both the existing guidance and the temporary guidance being issued.

In order to remove some of the uncertainty and to limit the potential adverse state tax consequences of employees working remotely, the Remote and Mobile Worker Relief Act (RMWR) was introduced to the Senate in July as part of the American Workers, Families, and Employers Assistance Act. The RMWR contains special provisions prohibiting a state and its localities from taxing the wages of an employee who is performing services in a state other than their state of residence due to the COVID-19 public-health emergency.

“Businesses with telecommuting workers need to evaluate the potential payroll and business-tax consequences created by those employees working from home in states where the business would not otherwise have a taxable presence.”

For calendar year 2020, this protection is afforded for a period not to exceed 90 days. Businesses would also be provided protections under this tax-relief package concerning their telecommuting employees. Remote workers performing duties in a state or locality where the employer does not otherwise have a presence would not automatically cause the business to be subject to taxation in that state. However, as it is unclear when or if this bill will pass, employers must continue to review the guidance of the respective states and localities where their remote workers are performing services.

Massachusetts Guidance

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:

• A government order issued in response to the COVID-19 pandemic;

• A remote-work policy an employer adopts to comply with federal or state guidance or public-health recommendations relating to COVID-19;

• A worker’s compliance with quarantine requirements due to a COVID-19 diagnosis or suspected diagnosis; or

• 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 Dec. 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 still be prudent for an employer to still review the guidance of the respective states and localities where their remote workers are performing services.

Guidance from Neighboring States

New York: New York is one of five states that has a ‘convenience of the employer rule,’ treating 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 in 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 of 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.

Carolyn Bourgoin, CPA is a senior manager, and Lisa White, CPA is a manager for the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.; [email protected]; [email protected]

Opinion

Opinion

By Mark Adams

The ripple effects of the government shutdown have started to come to bear on employers.

Specifically, due to the partial government shutdown that began on Dec. 22, 2018, the E-Verify system is not available. According to the E-Verify site, operated by the Department of Homeland Security (DHS), “E-Verify is currently unavailable due to a lapse in government appropriations. While E-Verify is unavailable, employers will not be able to access their E-Verify accounts. We apologize for any inconvenience and look forward to serving you once we resume operations. For more information, see E-Verify Unavailable.”

During the shutdown, employers will not be able to enroll in the program; access their E-Verify accounts; create a case; view or take action on any case; add, delete, or edit accounts; reset passwords; edit company information; terminate accounts; or run reports. Workers will not be able to resolve E-Verify Tentative Nonconfirmations (TNCs) during the shutdown.

In addition, myE-Verify will be unavailable, and employees will not be able to access their myE-Verify accounts.

To minimize the burden on both employers and employees, DHS announced that:

• The three-day rule for creating E-Verify cases is suspended for cases affected by the unavailability of the service;

• The time period during which employees may resolve TNCs will be extended. The number of days E-Verify is not available will not count toward the days the employee has to begin the process of resolving their TNCs; and

• Federal contractors with the Federal Acquisition Regulation E-Verify clause should contact their contracting officer to inquire about extending federal contractor deadlines.

Further information about what is and is not available online can be found at www.e-verify.gov/e-verify-and-e-verify-services-are-unavailable.

The shutdown does not affect an employer’s responsibility to verify employment eligibility through the Form I-9. Employers must still complete the Form I-9 no later than the third business day after an employee starts work for pay and comply with all other Form I-9 requirements.

Once the government operations fully resume, DHS will notify employers with additional guidance regarding the ‘three-day rule’ and time period to resolve TNC deadlines once operations resume.

Mark Adams is director of HR Services for the Employers Assoc. of the NorthEast (EANE), an Agawam-based company that provides resources for organizations to maximize employee engagement and retention while minimizing risk.