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August 11, 2020

New Hampshire and Connecticut federal lawmakers take action to stop states from imposing income tax on out-of-state teleworkers

U.S. House of Representatives Chris Pappas (D-NH) and Jim Himes (D-CT) introduced legislation under H.R. 7968 that would prevent states like Massachusetts from imposing state personal income tax on employees who are teleworking outside the state. Specifically, the bill would clarify that workers are required to pay income tax only in the state where they are physically present when the income is earned.

The proposal comes within days of New Hampshire Governor Chris Sununu's announcing that he had directed the New Hampshire Department of Justice to investigate whether the COVID-19 emergency regulations concerning income tax on teleworkers published by the Massachusetts Department of Revenue result in the improper collection of personal income tax from affected New Hampshire residents. New Hampshire does not currently impose a personal income tax on wages.

As previously reported (EY Tax Alert 2020-1081), Massachusetts emergency regulations provide that effective March 10, 2020, and through the earlier of December 31, 2020, or 90 days after the state's emergency order is lifted (TIR-20-10), all compensation received for personal services performed by a nonresident, who, immediately prior to the Massachusetts COVID-10 emergency, was an employee engaged in performing services in the state, and who during such emergency is performing services from a location outside of Massachusetts due solely to COVID-19, will continue to be treated as Massachusetts-source income subject to Massachusetts personal income tax and income tax withholding.

The Massachusetts emergency regulations temporarily establish something similar to the "convenience-of-the-employer rule" imposed by some states, such as Connecticut and New York, that effectively imposes nonresident income tax on workers based on the state where they receive direction and control rather than where their wages are earned. (Read our special report for more information concerning the convenience-of-the-employer rule.)

In his press release, Rep. Pappas stated that "at a time when many New Hampshire residents are teleworking from home in order to keep their families and their communities safe, it is completely unfair for Massachusetts to levy an income tax on these workers."

Ernst & Young LLP insights

The momentum for enacting federal law to regulate when states can impose their nonresident income tax has increased significantly due to the substantial spike in telework during the COVID-19 emergency.

Earlier this year, Senator John Thune (R-SD) and Senator Sherrod Brown (D-OH) introduced legislation(S. 3995) to limit the circumstances in which teleworkers and short-term business travelers can be subject to nonresident income tax. The provisions of S.3995 were included in the Senate Republican's Health, Economic Assistance, Liability Protection and Schools (HEALS) Act proposal for the next COVID-19 relief bill.


Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services - Employment Tax Advisory Services
   • Debera Salam (
   • Kristie Lowery (
   • Kenneth Hausser (
   • Peter Berard (


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