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Massachusetts DOR Extends Sourcing Rules for Telecommuting Employees

Posted on Dec. 10, 2020

Nonresidents who work in Massachusetts but are telecommuting because of the COVID-19 pandemic will continue to be subject to the state's personal income tax.

The Department of Revenue on December 8 readopted an emergency reg and issued a proposed regulation extending the state's income-sourcing rules for nonresidents working remotely because of the COVID-19 state of emergency.

The department's nearly identical, previous regulation was adopted in October and was valid from March 10 only until the earlier of December 31 or 90 days after Massachusetts’s state of emergency is no longer in effect. With December 31 quickly approaching, the sourcing rules will now apply until 90 days after the state of emergency is lifted, according to the new emergency reg.

“With pandemic-related teleworking arrangements expected to carry into 2021, the Department of Revenue has extended its temporary income-sourcing regulations until 90 days after the end of the state of emergency in order to minimize disruptions for employers and employees during the COVID-19 public health emergency,” DOR spokeswoman Naysa Woomer told Tax Notes December 9.

A public hearing for the proposed regulation is scheduled for January 20, 2021.

The DOR also issued a technical information release (TIR) extending its previously issued guidance on teleworking “in light of the continuing state of emergency.” The TIR provides specific guidance on the effects to personal income, withholding, corporate excise, sales, and use taxes when the employee works remotely because of the pandemic.

The TIR clarifies the records that businesses need to keep to claim a nexus exemption. It also explains the application of the Massachusetts Paid Family and Medical Leave Program when an employee works remotely in a different state.

The state's sourcing regulation was recently challenged by New Hampshire, which argues that Massachusetts imposing its income tax on nonresident remote workers is unconstitutional. New Hampshire doesn't have a state income tax.

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