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MA Tax Implications of a Remote Employee Due to COVID-19

AAFCPAs would like to make clients aware that the Massachusetts Department of Revenue (DOR) issued a Technical Information Release (TIR) describing the Massachusetts personal income and withholding tax implications of an employee working remotely in a state other than the state where the employee previously worked, solely due to the Coronavirus pandemic.

The TIR explains that the way Massachusetts businesses generally handle payroll associated matters will not change for employees working from home solely due to the COVID-19 pandemic.

Personal Income and Withholding Tax

For the duration of the Massachusetts COVID-19 state of emergency, all compensation received for personal 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, during such emergency, is performing such services from a location outside Massachusetts due solely to the Massachusetts COVID-19 state of emergency, will continue to be treated as Massachusetts source income subject to personal income tax and personal income tax withholding.

Other states have adopted, or are adopting, similar sourcing rules due to similar declared states of emergency. A resident employee suddenly working in Massachusetts due to a state’s COVID-19 state of emergency who continues to incur an income tax liability in that other state because of that state’s sourcing rule will be eligible for a credit for taxes paid to that other state. In addition, the employer of such employee is not obligated to withhold Massachusetts income tax for the employee to the extent that the employer remains required to withhold income tax with respect to the employee in such other state.

Sales and Use Tax Nexus

For the duration of the COVID-19 state of emergency in Massachusetts, the presence of one or more employees that previously worked in another state but, solely due to the COVID-19 pandemic, are working remotely from Massachusetts, will not in and of itself trigger nexus for sales and use tax collection purposes.

Corporate Excise

Nexus

For the duration of the Massachusetts COVID-19 state of emergency, the DOR will not consider the presence of one or more employees working remotely from Massachusetts solely due to the COVID-19 pandemic to be sufficient in and of itself to establish corporate nexus. In addition, such presence will not, of itself, cause a corporation to lose the protections of Public Law 86-272.

Apportionment

Relatedly, for the duration of the COVID-19 state of emergency, services performed by such an employee in Massachusetts will not be considered to increase the numerator of the employer’s payroll factor for corporate apportionment purposes.

Paid Family and Medical Leave (PFML)

For the duration of the Massachusetts COVID-19 state of emergency, an individual who previously performed services outside of Massachusetts and was not subject to PFML will not become subject to PFML solely because the individual is temporarily working from home in Massachusetts due to the emergency as declared by such other state. Likewise, an individual who previously performed services in Massachusetts but is temporarily working from home outside of Massachusetts solely due to the Massachusetts COVID-19 state of emergency, continues to be subject to the PFML rules.

These rules are effective for the period beginning March 10, 2020 and ending on the date on which the Governor gives notice that the state of emergency declared in Executive Order 591 is no longer in effect.

If you have questions, please contact Julie Chevalier CPA, Tax Partner at jchevalier@nullaafcpa.com, 774.512.4037, or your AAFCPAs Partner.

About the Author

Julie Chevalier, CPA
Julie is responsible for ensuring that clients minimize tax obligations with cutting-edge solutions based upon proven effective and reliable tax expertise.  Her skills are concentrated on state and local taxation (SALT), including: income, franchise, property, payroll and sales and use taxes. She delivers compliance, tax consulting and tax planning solutions for individuals and privately-held businesses in a variety of industries, including: retail, professional services, technology, software, publishing, manufacturing and nonprofit entities. She is highly-sought after for her knowledge on issues related to: physical presence versus economic nexus; state apportionment; tax exposure in relation to FIN 48 financial reporting; and the tax implications of multi-state transactions, such as: mergers, acquisitions, expansions and relocations.