April 2, 2020 Michigan employees are exempt from nonresident city income tax during the period they work from home outside of their normal work location (relevant to COVID-19) On April 1, 2020, the Michigan Department of Treasury published a telecommuting frequently asked question to address the applicability of Michigan city income tax when employees are temporarily working from home outside of their normal work location. The guidance comes at a time when many employees are working from home due to the COVID-19 emergency. The Department confirms that if employees are temporarily working from home outside of the Michigan city where they normally perform services, nonresident income tax does not apply in the Michigan city where those employees normally work. The Department provided the following example: Bill lives in Grand Ledge and primarily works from his office in Lansing. His income is generally taxable by the city of Lansing. On occasion, Bill works (telecommutes) from his home in Grand Ledge. The income Bill earns from the hours he works from his home are NOT taxable by the city of Lansing. Documentation is required Michigan nonresident city income tax returns include a schedule for nonresidents to allocate wages between taxable city income and nontaxable city income, based either on days worked or hours worked. Employees are instructed to keep a work log of the days worked outside the city. Employers should provide employees with a letter showing the dates employees were directed to work from home. Employees are not required to submit the work log and employer letter with a city income tax return; however, they should still retain the documents as they may be required to furnish them at the request of the Michigan city tax administrator. Authority The Department explains that there is no provision in the City Income Tax Act (CITA) permitting cities to tax wages earned outside of the city. CITA defines compensation as "salary, pay or emolument given as compensation or wages for work done or services rendered, in cash or in kind, and includes but is not limited to the following: salaries, wages, bonuses, commissions, fees, tips, incentive payments, severance pay, vacation pay and sick pay." MCL 141.604(2) Nonresidents are taxed on "salary, bonus, wage, commission, and other compensation for services rendered as an employee for work done or services performed in the city." MCL 141.613(a) Therefore, the Department concludes, nonresidents of a city that imposes a city income tax under the City Income Tax Act are not subject to city income tax on compensation earned while telecommuting from a location that is physically outside of the city. A list of the 19 Michigan cities that impose a city income tax and the rates that apply is available on the Department's website here. ———————————————
——————————————— EY Payroll News Flash
| |||||||||||
| |||||||||||
