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The Vermont Department of Taxes issued guidance concerning the income tax and income tax withholding requirements that apply to wages paid for services provided temporarily in the state due to COVID-19.

Vermont nonresident income tax requirements

A nonresident temporarily living and working in Vermont has an obligation to pay Vermont income tax on the amount earned while living and performing work in Vermont. This rule applies even if the employee is working in Vermont due to the COVID-19 emergency and regardless of whether the employer is located within or outside of Vermont.

The Department provided guidance explaining that a Vermont personal income tax return must be filed (and Vermont income tax paid) if you either :

1. Are a resident, part-year resident of Vermont or a nonresident who is required to file a federal income tax return, and earned or received more than $100 in Vermont income
2. Earned or received gross income of more than $1,000 as a nonresident (See 32 V.S.A. Section  5861 and Section  5823(b) (1-6) for information on sources of income.)

Income tax withholding requirements

If businesses have employees working remotely in Vermont on a temporary basis only, the Department will not require the employer to change the employee's work state to Vermont for Vermont income tax withholding purposes.

The Department cautions that employers/employees should consider setting employees up in Vermont for income tax withholding if they intend to telework for an extended period, even if the arrangement is temporary.

Additionally, employees who have permanently moved to Vermont and make it their domicile are subject to Vermont income tax withholding if their employer operates within Vermont and/or those employees are working remotely in Vermont.

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