On May 21, 2021, Governor Baker announced that he would lift the COVID-19 state of emergency on June 15th. Effective 90 days after the lifting of the state of emergency (September 13, 2021), employees and employers will return to the regular method of determining the taxable income for certain telecommunicating nonresident individuals. Let’s take a closer look at how this will impact Massachusetts employers and employees.
Massachusetts Taxation During the Pandemic
For personal income tax purposes, Massachusetts residents are generally taxed on all of their income from whatever source derived. However, Massachusetts taxes nonresidents on items of gross income from sources within the Commonwealth, including their wages while working in Massachusetts.
In response to the pandemic, the Massachusetts Department of Revenue released an emergency regulation describing the tax treatment of telecommuters that began working outside the state due to circumstances related to the pandemic. These telecommuters, who previously worked from Massachusetts locations, were directed to continue sourcing their wages to Massachusetts despite working outside the state. This emergency regulation raised the ire of many, including the New Hampshire state government, prompting the filing of a complaint by New Hampshire with the U.S. Supreme Court which the court may hear in the fall.
The State of Emergency Ends
On September 13, 2021, nonresident employees will no longer source their income to Massachusetts when working outside the state. As a result, employers should no longer withhold personal income tax in a manner that assumes the employee has Massachusetts source income while working outside the state. We expect to receive a new administrative release from the Department of Revenue announcing the end of the application of the emergency regulation.
Other Considerations and Next Steps
Employers should check with their remote workers to determine their new locations and adjust withholding to coincide with the change to Massachusetts law. In addition, employers might have to make numerous changes to their own taxes due to employee location changes. We previously addressed some of these issues in Returning to the Office or Not: Tax Implications of Employee Location Changes.
If you have questions about the taxation of employees working from home, please reach out to a member of your DGC client service team or Scott Thomas, JD, LLM at 781-937-5172 / firstname.lastname@example.org. You can also visit DGC's coronavirus web page at dgccpa.com/coronavirus which is frequently updated with new resources to help you deal with the financial impact of the coronavirus on you and your business.