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April 16, 2020
2020-0996

Pennsylvania provides nexus relief for employees working from home temporarily in the state due to COVID-19

The Pennsylvania Department of Revenue released three frequently asked questions (FAQs) to respond to inquiries concerning the imposition of nexus when employees are working from home temporarily within the state due to COVID-19.

Pennsylvania income tax withholding

When asked if a Pennsylvania employer is required to withhold Pennsylvania nonresident income tax for an employee who is not a resident of state where there is a reciprocal agreement and who is working in the state temporarily due to COVID-19, the Department responded that it will not consider a change to its sourcing rules for compensation. Accordingly, the nonresident employee's compensation is subject to Pennsylvania nonresident income tax and withholding.

Nexus for corporate net income tax (CNIT)

When asked if an employee working from home temporarily due to COVID-19 creates nexus for Pennsylvania CNIT purposes, the Department responded that due to Governor Tom Wolf's Proclamation of Disaster Emergency on March 6, 2020, the department will not seek to impose CNIT nexus solely on the basis of temporary activity within the state due individuals working temporarily from home in connection with COVID-19.

Sales and use tax (SUT)

When asked if an employee working from home temporarily due to COVID-19 creates nexus for purposes of SUT, the Department responded that due to Governor Tom Wolf's Proclamation of Disaster Emergency on March 6, 2020, the department will not seek to impose SUT nexus solely on the basis of temporary activity within the state due individuals working temporarily from home in connection with COVID-19.

Ernst & Young LLP insights

The Department's FAQs do not mention the applicability of Pennsylvania unemployment insurance pursuant to workers temporarily working within the state due to COVID-19. However, unemployment insurance typically applies in only one jurisdiction based the federal four-prong test. For more information see our EY Tax Alert 2020-0531.

This guidance does not change the requirement that Pennsylvania employers withhold nonresident income tax from all wages earned within the state, including those that are paid to employees temporarily working from home in the state due to COVID-19.

This announcement, does, however, bring much needed relief to Pennsylvania employers that otherwise could have been forced to pay CNIT and SUT taxes merely because employees are temporarily working from home within the state due to the COVID-19 emergency.

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)
   • Kristie Lowery (kristie.lowery@ey.com)
   • Peter Berard (peter.berard@ey.com)

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