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The Massachusetts Department of Revenue has issued final regulations under 830 CMR 62.5A.3, governing the income tax withholding requirements for residents and nonresidents who are working in Massachusetts temporarily due to COVID-19.

Effective date

The final regulations apply to the sourcing of wages attributable to work performed commencing March 10, 2020 through the earlier of December 31, 2020, or 90 days after the date on which the Governor of the Commonwealth gives notice that the Massachusetts COVID-19 state of emergency is no longer in effect.

Pandemic-related circumstances

For purposes of the final regulations, pandemic-related circumstances are defined as those meeting any of the following situations:

• A government order issued in response to COVID-19
• A remote work policy adopted by an employer in good faith compliance with federal or state government guidance or public health recommendations relating to COVID-19
• The worker's compliance with quarantine, isolation directions relating to a COVID-19 diagnosis or suspected diagnosis, or advice of a physician relating to COVID-19 exposure
• Any other work arrangement in which an employee who performed services at a location in Massachusetts prior to the Massachusetts COVID-19 state of emergency performs such services for the employer from a location outside Massachusetts during a period in which the final regulations are in effect (See 830 CMR 62.5A.3(2))

Nonresidents

All compensation received for services performed by a nonresident who, immediately prior to the Massachusetts COVID-19 state of emergency was an employee engaged in performing such services in Massachusetts, and who is performing services from a location outside Massachusetts due to a pandemic-related circumstance will continue to be treated as Massachusetts-source income subject to personal income tax under M.G.L. c. 62, Section 5A and personal income tax withholding pursuant to M.G.L. c. 62B, Section 2. (See 830 CMR 62.5A.3(3)(a).)

A nonresident employee who, prior to the Massachusetts COVID-19 state of emergency, determined Massachusetts-source income by apportioning based on days spent working in Massachusetts in accordance with 830 CMR 62.5A.1(5)(a), must continue to do so based on either:

• The percentage of the employee's working days spent in Massachusetts during the period January 1 through February 29, 2020 as determined under 830 CMR 62.5A.l(5)(a)
• If the employee worked for the same employer in 2019, the apportionment percentage properly used to determine the portion of employee wages constituting Massachusetts-source income on the employee's 2019 return (See 830 CMR 62.5A.3(3)(b).)

Residents

A resident employee who, immediately prior to the Massachusetts COVID-19 state of emergency, was an employee engaged in performing services from a location outside of Massachusetts, and who began performing such services in Massachusetts due to a pandemic-related circumstance, will be eligible for a credit for income taxes paid to the state where the employee was previously providing services, to the extent provided under M.G.L. c. 62, Section 6(a). In addition, the employer is not obligated to withhold Massachusetts income tax to the extent the employer remains required to withhold another state's income tax with respect to the employee. (See 830 CMR 62.5A.3(4).)

Assertion of nexus for sales and use tax and corporate excise tax

Under previous guidance issued in TIR 20-10, the Department explained that one or more employees working remotely in Massachusetts solely due to COVID-19, including the presence of business property reasonably needed for such persons' use while working remotely, will not cause a business to be subject to a sales and use tax collection obligation or to the corporate excise (or corporate apportionment adjustments).

Businesses claiming a nexus exemption due to COVID-19 are required to maintain written records that are sufficient to substantiate the existence of a COVID-19-related circumstance with respect to the employee(s) triggering the exemption.

Paid Family and Medical Leave

Also in TIR 20-10, the Department stated that under the Massachusetts Paid Family and Medical Leave (PFML) program, businesses are required to collect and remit PFML contributions on behalf of individuals who perform services in Massachusetts.

An individual who previously performed services outside of Massachusetts and was not subject to PFML will not become subject to PFML solely because the individual is temporarily working from home in Massachusetts due to COVID-19. Likewise, an individual who previously performed services in Massachusetts but is temporarily working from home outside of Massachusetts solely due to COVID-19 continues to be subject to the PFML rules.

The Executive Office of Labor and Workforce Development intends to issue additional guidance regarding the application of the PFML rules once the rules in this TIR cease to be in effect.

Ernst & Young LLP insights

U.S. House of Representatives members 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 came 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.

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