Massachusetts Releases Rules Relating to Out-of-State Telecommuting Workers

October 21st, 2020 • Blog

Jim Moran, CPA, MST

COVID-19 has had a big impact on businesses and individuals alike. One universal change has been the increase in telecommuting workers. This may not seem like it would be all that impactful when it comes to your taxes, but it does beg the question: Whose state income tax should you be responsible for? Is it based on where you are physically working, should it now be your home state or should you continue paying the state tax in the state you were working? This has recently become a popular topic, particularly for New Hampshire residents who previously had been commuting to Massachusetts but have been working from home since March.

On October 16, the Massachusetts Department of Revenue issued final regulations stating that all compensation received for services performed by a non-resident who, immediately prior to the Massachusetts COVID-19 state of emergency was an employee engaged in performing such services in Massachusetts, and who is performing services from a location outside Massachusetts due to a pandemic-related circumstance will continue to be treated as Massachusetts source income subject to the personal income tax.

So, what does this mean? It means that a non-resident employee who, prior to the Massachusetts COVID-19 state of emergency, determined Massachusetts source income by apportioning based on days spent working in Massachusetts, must continue to do so based on (1) the percentage of the employee’s work days spent in Massachusetts during the period January 1 through February 29, 2020, or (2) if the employee worked for the same employer in 2019, the apportionment percentage properly used to determine the portion of employee wages constituting Massachusetts source income on the employee’s 2019 return.

For example, if a non-resident employee is working from home full-time due to a pandemic-related circumstance but during the period January 1 through February 29, 2020 the employee worked five days a week, two of those days from an office in Boston and three of those days from home, 40% of the employee’s wages would continue to be Massachusetts source income. In general, what your MA source wages were prior to March 1, 2020, will continue to be your MA source wages moving forward.

As a result of this ruling, the State of New Hampshire has filed a lawsuit against Massachusetts at the US Supreme Court due to the adverse effects on New Hampshire employees working in Massachusetts.

Click here to read more about Massachusetts’ ruling.

Maine has also released a Tax Alert to assist their residents in calculating the appropriate amount of wages to report on their state income tax return. Click here to read the tax alert.

Contact us if you have any questions about what this may mean for you.

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