New York provides an exception from the convenience of the employer rule in limited circumstances. Naturally, this law has been challenged. Similarly, New Jersey revised its administrative guidance4 setting Oct. 1, 2021, as the expiration date of its temporary nexus and withholding guidance. The New Jersey Division of Taxation (Division) took the position that TeleBright was liable for the CBT because it was "doing business" in New Jersey by permitting the employee to work from her home within the state. 4See N.J. Div. Regs. For example, Ohio enacted legislation in March providing various tax relief measures in response to the pandemic. 1SeeStandard Pressed Steel Co. v. Department of Revenue,419 U.S. 560 (1975) (the presence of one employee within the state of Washington was sufficient to subject the company to the state's business and occupation tax without violating due process);National Geographic Soc'y v. California Bd. Copyright 2022, CBIZ, Inc. All rights reserved. Employers may be required to report taxable employee benefits, such as bonuses and stipends, for remote workers and withhold income taxes for the respective states. Our network of dedicated state and local tax professionals combines technical knowledge with industry understanding and access to technologically advanced tools and methodologies. This is particularly true for employees who work in New York but live in another state during the pandemic. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Employees who have not previously submitted a Form IT-2104 and have submitted a 2020 or later Federal Form W-4, will default to Single and zero (S00). 86-272 jurisdictions, and documenting employer requirements to satisfy the convenience-of-the-employer tests. COVID-19. The employer is required to withhold Connecticut income tax on wages paid to the nonresident employee in the same proportion that the employee's wages derived from or connected with sources within Connecticut relate to the employee's total wages. of Equalization,430 U.S. 551 (1977). New York imposes a tax on non-residents for income "derived from sources in" New York, including income from a "business, trade, profession or occupation carried on" in the state. & Admin., Revenue Legal Counsel Op. 16"Massachusetts Source Income of Non-Residents Telecommuting Due to the COVID-19 Pandemic," 830 Mass. Reciprocity agreements allow employees who live and work in different states to avoid tax withholding in the work state as long as all states involved maintain reciprocity. In addition, where there is a shift in work locations, there is an anticipated corresponding movement of certain technology, furniture, and other equipment. Connecticut does not tax non-resident employees of an in-state employer when the employee performs services entirely outside the state. State and local income and franchise tax apportionment formulas are based on a receipts factor and, in some cases, still include a property and payroll factor. Your employer should initiate a tax compliance review when it is made aware of a remote employee's new location. 30, 1124(b); Schedule W, "Apportionment Worksheet," of Delaware Form 200-02 NR,Non-Resident Individual Income Tax Return;Flynn v. Director of Revenue, No. ACA reporting compliance is important for employer tax filing. Income Tax Implications. New York state clarified its position on the wages for New York nonresidents working outside the state for the duration of the . But both of those taxpayers brought . If you have remote employees, the work location may be different than where your employee physically works. New York: New York Senate bill S.8386 proposed that employees working outside the State (or City) during the pandemic (defined as the time period covered by New York Executive Order 202, March 7, 2020 to September 7, 2020) should be deemed to be doing so as a matter of necessity rather than for the employees' convenience and, thus, those . This could subject taxpayers who work in one state but live in another to personal income taxes in multiple states, more so now than ever before. Specifically, the applicable regulation states that "any allowance claimed [by nonresidents of New York] for days worked outside New York State must be based upon the performance of services which of necessity, as distinguished from convenience, obligate the employee to out-of-state duties in the services of his employer." Enjoy spending time with my family, reading and traveling. Below is a review of critical state and federal tax . If the Court takes this case, we will provide more analysis at that time. Many states have issued specific guidance over the last several months addressing the income tax withholding treatment of remote employees. The author would like to thank Steven J. Colby for his contributions to this article. The intersection of tax withholding, remote work, and local tax rules can be seen in the dispute between Massachusetts and New Hampshire in 2020 over nonresident taxation. Bd. Arkansas recently enacted legislation reversing the state's "convenience" rule, retroactive to Jan. 1, 2021 (Ark. Filing requirements (NYS-45, NYS-1) Filing methods; Withholding due dates; Penalties and . However, an argument arose as to whether New Hampshire had standing to bring the suit. 7/22/21) (petition filed). Throughout the COVID-19 pandemic, many employees have worked from home. The growing remote workforce presents tax implications, though, for employers whose workers now reside and work in a different state than where the company is based. One of the most sweeping economic changes arising as a result of the pandemic is the shift from in-person to remote working. Although the issues themselves are not new, the impact of those issues is now much greater since more individuals are working remotely than ever before. May 6, 2021 11:23 am ET. All of these apportionment changes can first be expected to affect quarterly financial statement reporting and estimated payments, then ultimately the preparation and filing of state and local income and franchise tax returns. To avoid double taxation, most states allow their residents to claim a credit for taxes paid to nonresident states on the same income. As of 2022, 16 statesArizona, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, West Virginia, and Wisconsinand the District of Columbia have reciprocal tax agreements in place. Depending on what your remote . "In a number of states, a nonresident employee is subject to withholding on the first day of travel into the states. New Hampshire, which has no state income tax, sued Massachusetts, disputing the constitutionality of this type of withholding of income taxes from nonresidents. Pre-COVID-19, many states regarded remote workers as a nexus for employers based in different states. Codes R. & Regs., tit. Experian Employer Services Tax Withholding Services can assist companies in determining the proper state tax withholding for remote and on-site employees. Almost a decade ago in Telebright Corp. v. Director, New Jersey Division of Taxation, 424 N.J. Super. Meanwhile, others are still contemplating whether to make this change permanent. One example of this: If you were employed by a New York-based organization but chose to work remotely from California last year, New York will tax your income on the basis of its convenience rule . A remote employee could negate a company's existing P.L. Resources. Zelinsky v. Tax Appeals Trib., 541 U.S. 1009, 124 S.Ct. As with many states' business taxes, the CBT is imposed upon the "privilege of doing business" within the state. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets. Here are the new tax brackets for 2021. Dont get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Generally, N.J.S.A. What should tax departments and tax professionals do? Meanwhile, nonresident taxpayers working in other convenience-of-the-employer jurisdictions should consider whether to file similar refund actions challenging the convenience-of-the-employer rules. After a year of New York taxpayers having to . However, ongoing litigation may change the current landscape. Connecticut recently introduced a limited convenience rule, beginning in tax year 2019. 179D energy-efficient commercial buildings deduction, IRS provides guidance on perfecting S elections and QSub elections. remember settings), Performance cookies to measure the website's performance and improve your experience, Marketing/Targeting cookies which are set by third parties with whom we execute marketing campaigns and allow us to provide you with content relevant to you. Connecticut Conn. Gen. Stat. Additionally, employers that did not previously maintain a remote workforce and for whom it was generally unnecessary to track employee work locations may find unique hurdles for compliance. Market-based sourcing may yield the same types of indirect implications seen with sales of tangible personal property, including shifts in where the benefits are received by customers. (iStock) Tax officials in New York state are taking a closer look at the . Thursday, June 10, 2021. Here's Big Rule #1: Any state that can claim you as a resident gets to tax your income. Specifically, the New Jersey Division of Taxation (New Jersey Division) website states that, while New Jerseys "sourcing rules dictate that income is sourced based on where the services or employment is performed based on a days method of allocation," during the COVID-19 pandemic, "wage income will continue to be sourced as determined by the employer in accordance with the employers jurisdiction.". For non-resident employees who perform services both in and outside of New York, the income derived from New York sources is determined by the proportion of days worked in New York versus days worked everywhere else. See also Bell-Jacobs, McCann, Wlodychak, ", See also Yesnowitz, Sherr, Bell-Jacobs, ", Where Individual, Corporate, and Passthrough Entity Taxation Meet, AICPA Focuses Advocacy Efforts on Mobile Workforce Legislation, Marrying ESG initiatives to business tax planning, Early access to wages may require new employment tax analyses, Determining gross receipts under Sec. For example, John, who effectively changed his domicile to New Jersey in 2020, is working remotely from his home in New Jersey. . You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website. Those who receive such notices should not ignore them; doing so can result in having to pay additional taxes that would then require an attempt to recover those taxes by filing refund claims. Please refer to your advisors for specific advice. As such, they are unlikely to be directly affected by remote work but may be affected by related shifts in population, or decentralized purchasing patterns associated with remote work. Income tax withholding when the employee is living & working from home in a state different than their normal base of operations. The Division of Taxation announced this week that on Oct. 1 it will end the state's temporary waiver of several pre-pandemic tax rules in a move that will affect employer income-tax withholding as well as New Jersey's corporate business tax and sales taxes. Some of those secondary and other factors include: As you might imagine, it is not especially easy to meet a sufficient number of the required factors, although with careful planning and cooperation by the employer, it may be possible. While employees focus on employment taxes, employers need to consider not only employment taxes but also a broad array of other state and local tax issues, including nexus, apportionment, compliance, and financial statement reporting. 220154, Supreme Court of the United States website, Order List," Supreme Court of the United States website. The employee worked from New Jersey writing software code for the company, which was incorporated into a web application provided to TeleBright's clients. It's crucial that businesses understand the potential state tax . This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction. He appealed to the U.S. Supreme Court, which refused to grant certiorari.19.