We brought together the best of the best to deliver a suite of specialized solutions with unmatched service, trusted expertise and client-inspired innovation. While the new law applies specifically to Connecticut nonresidents who telecommute to Connecticut from out of state, it may similarly apply to Connecticut residents who telecommute into a state that has a convenience rule, such as New York. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. These rules create tax withholding complexity for employers and employees in these states, partly due to the lack of reciprocity agreements between states. , No. Code tit. Depending on what your remote . (For the previous guidance, see EY Tax Alert 2020-1067. denied). In response to an increased remote workforce, businesses may shift the location of offices, or possibly provide office space more conveniently located for those remote employees. 12-711(b)(2)(A) provides that for tax years 2016 and after, "compensation for personal services rendered in [Connecticut] for not more than fifteen days during a taxable year shall not constitute income derived from sources" within Connecticut. Almost a decade ago in Telebright Corp. v. Director, New Jersey Division of Taxation, 424 N.J. Super. 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." The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. However, all of this is predicated on the idea that the employer can both track the remote work location of all its employees and successfully limit their mobility to certain states. In response to the COVID-19 pandemic, New Jersey issued specific guidance granting relief regarding the income [?] 20200203 (Feb. 20, 2020). Similarly, New Jersey revised its administrative guidance4 setting Oct. 1, 2021, as the expiration date of its temporary nexus and withholding guidance. Yet, the issues raised in New Hampshire v. Massachusetts are far from settled and are of importance to anyone working in a convenience-of-the-employer jurisdiction. Brief for the United States as Amicus Curiae, p. 1, New Hampshire v. Massachusetts, No. However, as Zelinsky points out in his renewed petition, times have changed and they have changed drastically since 2003 due to advances in technology, coupled with the need to quickly pivot to remote work on a large scale because of COVID-19. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. 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. State and local taxes can significantly impact a companys cash flow, effective tax rate and risk profile. On October 19, 2020, New Hampshire filed an original jurisdiction suit against Massachusetts in the United States Supreme Court, challenging Massachusetts taxation of New Hampshire residents who telecommute to Massachusetts during the COVID-19 pandemic. The reader is advised to contact a tax professional prior to taking any action based upon this information. Moreover, it would likely be internally inconsistent, as discussed in the Wynne case (based on a former Maryland taxing scheme), and thus unconstitutional, to deny a credit in this situation, as it would lead to impermissible double taxation. 11See 316 Neb. Many people may not realize that you do not need to live in New York or be physically present there to be subject to New York income tax on your wage income. Thus, Pennsylvania adopted a status quo approach. Form W-9. . Once again, this highlights the practical need to accurately capture the location from which compensation is earned. Remote and hybrid work has the potential to affect all three of these factors to differing degrees. New York also has a convenience rule, under which New York state tax withholding for remote employees must be withheld if an employee works outside New York for their convenience rather than due to employer necessity. It also is a key driver of a taxpayer's effective tax rate for financial statement reporting of current and deferred taxes. In addition, on March 5, 2021, Connecticut Governor Ned Lamont signed legislation clarifying that telecommuters who are residents in Connecticut and assigned to work in New York would receive a credit on income taxed by both jurisdictions. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. In its frequently asked questions concerning filing requirements, residency and telecommuting for New York state personal income tax, the New York Department of Taxation and Finance (the "Department") states that the rules set forth in its 2006 guidance on telework (Technical Services Division Memorandum TSB-M-06(5)I) continues to apply when employees are working remotely from outside the . 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. 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. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. NJ/PA agreement noted above). . emphasizes that employees regularly working in New York but working out of . 7See Conn. Gen. Stat. in any city or state. In Telebright, the court analogized the employee's software writing to that of a manufacturing employee who fabricated parts in New Jersey for a product that was then assembled out of state.The court reasoned that the statute should be construed broadly and, without difficulty, concluded that TeleBright was "doing business" in the state by virtue of the telecommuting employee. How the great supply chain reset is unfolding. All of these present a rapidly changing range of impacts on effective rates and financial statement reporting, registrations, tax compliance, data gathering, and documentation. The primary factor is met if a home office is near a facility that is required for doing the job that the employers office cannot provide. 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. If you see two states: If you don't need to collect state withholding in one state: in the Filing Status dropdown, select Do not withhold (exempt). Field Audit Guidelines. 86-272 protection if the employee does anything more than solicitation within a particular jurisdiction. The EY Travel Risk and Compliance integration with SAP Concur solutions helps reduce risk. 384 (N.J. Super. It's crucial that businesses understand the potential state tax . State income tax withholding is generally required for the state in which the employees services are performed, and not for the state in which the employee lives. 830517 (N.Y. State Div. Five other states have similar convenience rules: Arkansas, Connecticut, Delaware, Nebraska, and Pennsylvania. Employers often have employment tax withholding obligations for their employees. As outlined in the employer considerations noted above each State is setting its own COVID exception rules you must consider the general concepts of state taxation and discuss the impact with your tax advisor. With more people working from home due to the COVID-19 pandemic, both employees and their companies are facing tax issues, even if the employee has relocated to a low-tax state. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); This field is for validation purposes and should be left unchanged. If passed, this could help future workers disrupted by lockdowns. Since you live there and consider it home, you'll pay taxes to that state. 86-272 applies to companies with sales of tangible personal property into a state where the only other connection with the state is the solicitation of orders that are approved and shipped from outside the state. Another example is the likely impact on personal property and sales and use taxes as the purchase and ownership of tangible property shifts from its traditional location to the decentralized world of remote office and remote workers. GenerallyNonresident employee compensation for services performed within Pennsylvania is subject to PA nonresident income tax and deduction unless there is a reciprocal agreement with the employees state (i.e. With this in mind, in providing a credit, Connecticut may take the position that it does not credit taxes paid by a Connecticut resident to another state if they worked in that state for 15 or fewer days. 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.". If you have questions about your specific situation and would like to discuss further, please email solutions@mercadien.com or call us at 609-689-9700. Citing to U.S. Supreme Court cases in which the Court has held that the presence of one employee within a state is sufficient to subject a company to that state's business tax without violating due process, the New Jersey court determined that TeleBright had sufficient minimum contacts with the state to satisfy due process.1. No. Some states have withholding thresholds based on a minimum amount of wages or number of days worked in the state. Other product or company names mentioned herein are the property of their respective owners. A permanent remote worker will file their personal income taxes in their state of residence, whether they are a W-2 employee or a 1099-NEC independent contractor. Florida and Texas who decide to work in a state that assesses income tax, e.g. Understand Reciprocity Agreements and Income Tax Rules. If the employee lives and works in different states and those states do not have a reciprocal agreement, the employee will have to file two tax returns, one for each state. State Income Tax. 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. The factors are divided into three categories: Primary, Secondary or Other factors. These types of considerations should be incorporated into the overall analysis of apportionment factors and effective tax rates. CFOs can look to tax functions to help navigate economic uncertainty, Select your location Close country language switcher, Managing Director, Indirect Tax, State and Local Tax, Ernst & Young LLP. Although not a convenience-of-the-employer state pre-pandemic, Massachusetts took a similar status quo position whereby it treated employees who had worked in Massachusetts pre-pandemic as if they were still working in Massachusetts during the pandemic.16 Thus, employees working from home in New Hampshire were still subject to Massachusetts' income tax.
