Connecticut provides retroactive 2020 COVID relief

Mar 10, 2021
Mar 10, 2021
0 min. read

On March 4, 2021, Connecticut Gov. Ned Lamont signed House Bill 6516, providing retroactive relief for businesses and individuals impacted by the COVID-19 pandemic. The bill prohibits the Connecticut Department of Revenue Services (DRS) from asserting that an out-of-state business has tax nexus with Connecticut solely because the business had employees who worked remotely from the state during the 2020 tax year. Additionally, the bill extends the state’s individual income tax credit for taxes paid to other states to individuals working remotely from Connecticut during the tax year who were subject to tax in their regular state of employment under the ‘convenience of the employer’ test.  


In general, a business has nexus with a state if the business has employees working from the state. Due to the COVID-19 pandemic and related office closures and stay-at-home orders, many non-Connecticut businesses with no tax connection to the state found themselves with a number of employees working remotely from the state for the duration of 2020. Absent relief, these employees would have subjected their businesses to Connecticut’s tax jurisdiction, resulting in new compliance responsibilities and potentially significant tax liability. House Bill 6516 retroactively bars the DRS from asserting nexus for tax year 2020 in circumstances where an out-of-state business would have nexus with the state solely because the business has one or more employees working from the state as a result of the COVID-19 pandemic. 

Credit for taxes paid to another state

States generally impose individual income tax on 100% of the employment income of residents and a portion of the employment income of non-resident employees based upon where they perform their work. Most states avoid double taxation issues either through reciprocity agreements or by granting their residents a credit for taxes paid to other states, which would allow a resident employee to offset the tax due to their state of residence by the tax paid to the state or states in which they worked. However, a small number of states, including New York, impose individual income tax on non-resident remote employees who ordinarily work in a New York office if their remote work was not for the convenience of the employer. In these situations, the resident state, such as Connecticut, may not grant a credit for the tax paid to the non-resident state under these rules. The COVID-19 pandemic saw a significant number of Connecticut residents, who would normally work in New York City, working from home but still paying New York tax. To clarify the creditability of this tax, House Bill 6516 provides that tax payments made by a Connecticut resident to another state under this type of approach would be fully creditable as long as the Connecticut resident was working remotely from Connecticut and had been working in the taxing state prior to March 11, 2020. Interestingly, the law does not address Connecticut residents working remotely from outside Connecticut over the course of the pandemic or Connecticut residents who were subject to another state’s tax because of a change in assigned workplace after March 11.

Other provisions

In addition to the retroactive changes regarding nexus and individual income tax, House Bill 6516 makes prospective changes to the state’s payments in lieu of taxes (PILOT) grants program, effective July 1, 2021. Under these changes, for the fiscal year ending June 30, 2022 and after, the amount of the grant paid to a municipality or district cannot be lower than the amount of the payment in lieu of taxes grant received by the municipality or district for the fiscal year ending June 30, 2021. PILOT program grants are for state-owned property, municipally-owned airports, Indian reservation land, private nonprofit colleges and hospitals.


It is particularly important for non-Connecticut businesses and remotely working Connecticut resident individuals to review and determine the impact of these changes. In instances where remote employees in Connecticut were found to impact nexus with the state, a business should review that determination, and should consider changing their filing approach for 2020 or, where estimated taxes have been paid or the return has already been filed, seek a no-nexus refund. For individuals, taking the credit may materially reduce Connecticut tax due. Where an individual taxpayer has already paid Connecticut estimated taxes or filed a return, a refund may be available.

Moreover, given that the nexus and credit for taxes paid relief provided by House Bill 6516 is limited to those impacted by the COVID-19 pandemic for tax year 2020, subsequent legislation could address the same issues for tax year 2021 and prospective periods as the approach to work for many business and telecommuting shifts permanently.  

Remote workforces are complicating state tax nexus and withholding. Many states are continuing to provide guidance and narrow relief for various remote working scenarios as the pandemic endures. Businesses and individuals should understand that some relief is narrow and may not apply to periods after 2020. Individuals and businesses are encouraged to speak to their tax adviser about the changing nature of remote work and the impact of the Connecticut legislation. 

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