While stay-at-home orders are in place, most people around the country have dramatically changed the way they are living each day, including the way they work. Employees who work from home in a state other than their normal work state can lead to nexus in additional states for businesses.

In response to the increase in teleworking, some states are providing guidance on the impact of teleworking on nexus and withholding requirements specifically related to the COVID-19 crisis.

The worst-case scenario? Picture this: If an employee lives in one state and normally works in another, the employee may be subject to withholding in their state of residence and their regular work state, and they may establish nexus for the business.

Generally, employers are required to withhold tax from wages based on where employees work. Therefore, particularly during the current pandemic, employers should pay attention to which states their teleworking employees live in and consider where nexus may be established.

To date, the following guidance has been released by the states:

  • New Jersey and Mississippi have updated withholding requirements to allow businesses to avoid triggering nexus by retaining the same withholding for employees who are teleworking due to the pandemic in a different state. Businesses would likely not become subject to new withholding requirements.
  • The District of Columbia, Indiana, and North Dakota provided guidance for corporate income tax purposes that the states will not seek to impose corporate income tax nexus on businesses with temporary remote workers.
  • Minnesota announced that it will not impose nexus on any business that has employees who are temporarily working from home.
  • Massachusetts provided guidance that the presence of employees who previously worked in another state but who are working remotely in Massachusetts solely due to the pandemic will not establish nexus.
  • Maryland provided guidance that employees who are teleworking may incur new withholding requirements. Businesses may need to update their withholding based on their teleworkers' states of residence. However, Maryland employers may not be required to make many changes since Maryland has reciprocity agreements with most neighboring states.
  • Ohio passed legislation indicating that remote work that is related to the current pandemic does not count toward the 20-day withholding threshold for municipal income taxes.

Even though some states have provided guidance on teleworking and nexus during COVID-19, we may not be able to count on it being the final guidance. Prior to making any changes in your withholding and reporting, we recommend that you take an inventory of where your employees are working and check with your Delap advisor to determine if any additional actions or filings may be required.

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