On Dec. 8, 2020, the Massachusetts Department of Revenue issued updated Emergency Regulation 830 Mass. Code Regs. 62.5A.3 and Technical Information Release 20-15 (TIR 20-15) providing that Massachusetts-sourced income of nonresidents telecommuting because of Massachusetts COVID-19 state of emergency will continue to be subject to the Commonwealth’s personal income tax. The department’s most recent guidance is consistent with its guidance released on April 21, 2020.
Emergency Regulation 830 Mass. Code Regs. 62.5A.3
As provided in the original emergency regulation, income sourced to Massachusetts by an individual working in the Commonwealth prior to March 1, 2020 who is currently telecommuting from outside of the Commonwealth due to Massachusetts COVID-19 state of emergency will continue to be subject to personal income tax and personal income tax withholding in the same manner that the income was subject to personal income tax and personal income tax withholding during the period Jan. 1, 2020 through Feb. 29, 2020.
The emergency regulation also provides that a credit will be available for Massachusetts residents who worked in another state prior to the COVID-19 pandemic but are currently required to work from home in Massachusetts because of the pandemic if they incur an income tax liability in the other state.
Furthermore, the emergency regulation states that out of state employers are not required to withhold Massachusetts income tax on the wages of an employee performing services in the Commonwealth due to the COVID-19 pandemic to the extent the employer of an individual in this scenario continues to withhold income tax for the other state.
New to this version of the regulation is that it is effective from March 10, 2020 until 90 days after the Massachusetts COVID-19 state of emergency is lifted. The department has also proposed making the regulation permanent and will remotely hold a public hearing on that proposal on Jan. 20, 2021.
Finally, taxpayers should be aware that the remote working withholding policy is currently being challenged by New Hampshire.
TIR 20-15
TIR 20-15 extends the department’s previously announced emergency rules related to the ongoing COVID-19 pandemic and makes the temporary rules first announced in TIR 20-5 effective until 90 days after Massachusetts COVID-19 state of emergency is lifted. TIR 20-15 also supersedes TIR 20-10, which provided similar guidance.
Sales and Use Tax Corporate Excise Tax
While TIR 20-15 is in effect, the presence of one or more employees that previously worked in another state but are now working remotely in Massachusetts due to the COVID-19 pandemic will not establish nexus for sales and use tax purposes.
Corporate Excise Tax
Furthermore, for corporate excise tax purposes the department will not consider the presence of one or more employees working remotely from Massachusetts due to the COVID-19 pandemic sufficient for an entity to establish corporate nexus or lose Public Law 86-272 protection. Additionally, while TIR 20-15 is in effect services performed by employees working remotely in Massachusetts due to the COVID-19 pandemic and the presence of business property reasonably required by such employee will not increase an entity’s payroll and property factors for Massachusetts corporate apportionment purposes.
Paid Family Medical Leave
While the TIR remains in effect, an individual who previously worked outside of the Commonwealth and was not subject to the Massachusetts Paid Family and Medical Leave (PFML) program, will not become subject to PFML if the individual is currently temporarily working in Massachusetts due to the COVID-19 pandemic. Likewise, an employee working remotely outside of the Commonwealth due to COVID-19 will continue to be subject to PFML.
Takeaways
Both the emergency regulation and TIR 20-15 make the department’s temporary rules effective until 90 days after the state of emergency in Massachusetts is lifted. The department continues to take the position that remote nonresident workers are subject to personal income tax and personal income tax withholding in the same way they were subject to personal income tax and personal income tax withholding during the period Jan. 1, 2020 through Feb. 29, 2020.
Massachusetts employees working from home for an out of state employer due to the COVID-19 pandemic should be aware that they are eligible for credits if they incur an income tax liability in another state. Out of state employers should also be aware they are not required to withhold Massachusetts income tax on the wages of an employee performing services in the Commonwealth due to the COVID-19 pandemic, so long as the employer continues to withhold income tax for the other state.
Massachusetts companies with nonresident employees and out of state businesses with Massachusetts resident employees should consult with their tax advisors for more information.
