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In Tax Bulletin #211 (p.7), the Wisconsin Department of Revenue provided guidance concerning the income tax and business tax nexus requirements that apply when employees are working in the state temporarily due to COVID-19. This guidance applies for the duration of the COVID-19 national emergency.

Nexus

The Department will not consider an out-of-state business to have nexus if its only activity within the state is its employees working temporarily from their Wisconsin homes during the COVID-19 national emergency.

Wisconsin state income tax

A taxpayer is liable for filing a Wisconsin personal income tax return and for paying any Wisconsin state income tax due under the usual rules explained below. (Wisconsin Tax Bulletin #171, April 2011).

• Nonresidents. Wisconsin has historically used the physical presence test to determine whether an employee's income is sourced to Wisconsin and subject to Wisconsin state income tax. An employee who is a resident of another state and who telecommutes for a Wisconsin employer is subject to Wisconsin state income tax on the amount earned for the days the employee is present in the state. The employer is required to withhold Wisconsin state income tax on a nonresident's wages earned within the state if the total amount of Wisconsin income is over $1,500 for the year.
• Residents. If an employee is a resident of Wisconsin and telecommutes for an out-of-state employer, the employee's income is sourced to Wisconsin and subject to Wisconsin state income tax.

Wisconsin state income tax withholding

The rules governing the employer's requirement to withhold Wisconsin state income tax from wages have not changed except that the withholding requirement does not apply to an out-of-state business if its only activity within the state is its employees working temporarily from their Wisconsin homes during the COVID-19 national emergency.

The Department provides the following examples of the state's income tax withholding requirements.

Example 1- Facts

• Company A is located in Wisconsin.
• Individual B is a resident of Minnesota and an employee of Company A.
• Prior to the COVID-19 national emergency, Individual B commuted daily to work for Company A in Wisconsin.
• During the COVID-19 national emergency, Company A allows Individual B to work from her home in Minnesota.

Example 1-Results

Wages paid to Individual B prior to the national emergency are subject to Wisconsin income tax because she was physically present in Wisconsin while performing services and Company A is required to withhold Wisconsin state income tax from these wages. Wages paid to Individual B during the COVID-19 national emergency are not subject to Wisconsin state income tax because she is not physically present in Wisconsin while performing services and Company A is not required to withhold Wisconsin state income tax from these wages.

Example 2 — Facts

• Company D is located in Minnesota.
• Individual E is a resident of Wisconsin and an employee of Company D.
• Prior to the national emergency, Individual E commutes daily to work for Company D in Minnesota.
• During the COVID-19 national emergency, Company D allows Individual E to work from his home in Wisconsin.
• Company D has no other activities in Wisconsin during the COVID-19 national emergency.

Example 2 — Results

Wages paid to Individual E prior to the COVID-19 national emergency are subject to Wisconsin state income tax because he is a resident of Wisconsin. However, Company D is not required to withhold Wisconsin income tax from these wages because of the special agreement between Wisconsin and Minnesota.

Wages paid to Individual E during the COVID-19 national emergency are subject to Wisconsin state income tax because he is a resident of Wisconsin. However, because Company D is not considered to have nexus in Wisconsin during the COVID-19 national emergency it is not required to (but may) withhold Wisconsin state income tax from Individual E's wages.

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