Amid the COVID-19 pandemic, many employers have shifted to a remote workforce. This shift has led to questions regarding the impact these remote workers would have on state taxation. In response, Rhode Island, Massachusetts, and Connecticut have all recently released guidance regarding the tax implications of having employees working remotely during the COVID-19 crisis.
Personal Income & Withholding Tax
Each of the referenced states announced that nonresident employees, temporarily working outside of that state, will continue to be treated as that states-source income for personal income tax and personal income tax withholding.
For example, a Massachusetts resident normally works for a Rhode Island employer. They have wages that are subject to Rhode Island income tax withholding. If the employee is temporarily working within Massachusetts due to the pandemic, the employer should continue to withhold Rhode Island income tax.
Additionally, Rhode Island, Massachusetts, and Connecticut will not require employers located outside of their state to withhold additional income taxes. Employees living in one state and working in another will not be required to additional home state withholdings while working remotely.
For example, a Rhode Island resident normally works for an employer in Connecticut. They have wages that are subject to Connecticut income tax withholding. If the employee is temporarily working within Rhode Island solely due to the pandemic, the employer will not be required by Rhode Island to withhold Rhode Island income taxes from that employee’s wages.
Corporate Nexus
Under new COVID-19 emergency regulations, Rhode Island, Massachusetts, and Connecticut have also released new guidance on corporate nexus.
In general, a company may trigger nexus when engaging in business activity outside of their primary state. But, during the COVID-19 pandemic, the existence of one or more employees that previously worked in another state but are working remotely, will not in and of itself trigger nexus for sales tax or corporate income tax purposes. For more detailed information, see the following:
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