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Connecticut General Assembly Passes Remote Worker Tax Credit Bill

Posted on Mar. 3, 2021

The Connecticut General Assembly has passed an emergency bill designed to protect workers from double taxation if they are required to work remotely during the COVID-19 pandemic.

H.B. 6516 passed the Senate March 1 by a vote of 28 to 7 after passing the House February 24 by a vote of 125 to 24. The bill was sent to Gov. Ned Lamont (D), who has expressed support for the bill and is expected to sign it into law.

In addition to the bill's three remote worker provisions, the legislation would make changes to the state’s payment-in-lieu-of-taxes program and would prevent the state from recovering cash and medical assistance from liens on real property unless required by federal law.

Some objections were raised about the bill, including its emergency certification and whether some of the bill's changes to payments in lieu of taxes were properly vetted.

Sen. Tony Hwang (R), who ultimately voted for the bill, said he supports protections for remote workers but thinks separate legislation should have been introduced for the remote worker provisions, a concern other lawmakers echoed.

The bill's remote worker provisions would apply for the 2020 tax year and would take effect upon enactment of the bill. It would allow Connecticut residents who paid income tax to another state with a convenience of the employer rule in place to obtain an income tax credit for the amount paid to the other state.

The neighboring state of New York has a convenience of the employer rule, which requires a nonresident taxpayer’s income to be sourced to the employee’s physical location while working remotely by necessity and to be sourced to the employer’s location if the employee is working remotely for convenience.

Connecticut adopted its own convenience of the employer rule in 2018 in response to New York’s rule; the Connecticut rule applies only if the taxpayer’s state of residence has a similar rule.

H.B. 6516 would also provide a credit to residents who have paid income tax to another state that has a law or rule requiring nonresident employees to pay nonresident income tax on income earned while working remotely during the COVID-19 pandemic if the employee was working in that other state before March 11, 2020.

Massachusetts adopted a regulation in October 2020 allowing it to source and tax the income of nonresident workers who would normally work in Massachusetts but are telecommuting because of the pandemic. New Hampshire — which has no income tax — has sued Massachusetts over the regulation, and Connecticut was among four states that filed an amicus brief in support of New Hampshire, urging the U.S. Supreme Court to hear the case.

According to the bill’s fiscal note, Connecticut residents would owe about $300 million in additional personal income tax payments for the 2020 income year if the credit isn’t provided. However, Democrats have said the bill won’t have a fiscal impact because it is not money the state was expecting to collect to begin with.

The bill's third remote worker provision would prevent the Department of Revenue Services from considering employees who worked remotely during the tax year solely because of the COVID-19 pandemic for purposes of determining whether an employer has nexus with the state.

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