-
- Work from home possibilities has led to rise in telecommuting
- Will telecommuters create nexus for out-of-state employers?
- Which state is owed income tax by telecommuters?
The term “nexus” describes the relationship between the state taxing authority and the taxpayer. In most situations prior to Covid-19, this word was mostly limited to the vernacular of businesses with sales in multiple states. But in an America under quarantine where 62% of the workforce is working remotely from home, nexus is more than a buzzword; it’s become a major factor for telecommuting taxpayers to consider.
The major question is: will there be a nexus between at-home workers and the state by which they are employed? The answer varies depending on your state. Hodgson Russ Attorneys LLP created a chart that outlines how each state is responding, but generally, most states have agreed that employees who are working remotely as a direct result of Covid-19 will not create a nexus with the state.
The major concern is: by what state does a telecommuting employee get taxed—the employee’s home state or the state in which the employer is located? Again, the answer depends on your state. Six states have imposed a “convenience of the employer” rule (CT, NY, DE, NE, PA, and NJ) which gives the employer the right to tax an out-of-state employee as if they were in the employer’s home state, under the condition that the employee is optionally working from home for convenience. With a situation like quarantine under the pandemic, remote working was certainly not so much a convenience as it was a necessity for employees. So, will these six states continue to implement the “convenience of the employer” policy on their telecommuting staff? This depends on each state’s nexus guidance.
Depending on how each state treats nexus for telecommuting employees as a direct result of Covid-19 can have a major impact on 2020 tax filing. Will at-home employees be double-taxed by their home state and employer’s state? While we do not know yet for certain, it seems ultimate that the 2020 tax season will provide certain obstacles for remote-working taxpayers.
Sincerely,
Devin McQuillan
Associate, Creative Solutions
Contact:
516-541-6549 | Email