March 29, 2021 Connecticut Department of Revenue Services issues FAQs about remote worker 2020 income tax and nexus relief due to COVID-19 As previously reported, on March 4, 2021, Connecticut Governor Lamont signed HB 6516 (2021 Conn. Pub. Acts 3), which provided certain income tax relief to remote workers for tax year 2020 due to COVID-19 restrictions. The law also established a nexus safe harbor preventing the imposition of corporation business, pass-through entity, sales and use, and withholding taxes from applying to out-of-state companies if their only connection to the state in 2020 stemmed from the presence of these teleworking employees. (See EY Tax Alert 2021-0533.) In TSSB 2021-1, the Connecticut Department of Revenue Services (DRS) published the following frequently asked questions (FAQs) concerning the application of 2021 Conn. Pub. Acts 3. FAQ 1 Under what circumstances does a remote worker qualify for the tax year 2020 COVID-19 income tax relief? The DRS recognizes that there are likely many different reasons why taxpayers worked remotely from home during taxable year 2020, all of which it considers "due" to COVID-19. Examples, which are illustrative and not exhaustive, include:
Connecticut residents claiming income tax relief under 2021 Conn. Pub. Acts 3 should be prepared to document their specific facts and circumstances, including by compiling relevant documents such as copies of emails, memoranda, policies, or other guidance issued by their employers regarding the status of their out-of-state offices. FAQ 2 Are Connecticut residents eligible to claim a credit for income tax paid to another state if they were hired (or rehired) on or after March 11, 2020 by an employer located in a state that has enacted a law or rule requiring a nonresident employee to pay nonresident income tax to such state and they worked remotely from home in Connecticut during taxable year 2020 for that employer? Yes. Connecticut residents who were hired (or rehired) on or after March 11, 2020 by an employer located in a state that has enacted a law or rule requiring a nonresident employee to pay nonresident income tax to such state and who worked remotely from home in Connecticut during taxable year 2020 for that employer are eligible to claim a credit for income tax paid to the other state. FAQ 3 Will nonresidents who were assigned to an office or work location in Connecticut and who worked remotely during tax year 2020 in a state that employs a "convenience of the employer" rule be subject to Connecticut income tax on the wages earned while they worked remotely? No. Connecticut will not impose its income tax on the wages that nonresident employees earned during tax year 2020 while working remotely in a state that employs a "convenience of the employer" rule, regardless of whether these nonresident employees were working remotely out of convenience or necessity. FAQ 4 Will nonresidents who were assigned to an office or work location in Connecticut and who worked remotely during tax year 2020 in a state that has enacted a law or rule requiring a nonresident employee to pay nonresident income tax to such state be subject to Connecticut income tax on the income earned while they worked remotely? No. Connecticut will not impose its income tax on the wages that nonresident employees earned during tax year 2020 while working remotely in a state that has enacted a law or rule requiring nonresident employees pay nonresident income tax to such state. FAQ 5 Will nonresidents who were assigned to an office or work location in Connecticut and continued to physically work in Connecticut for a Connecticut employer during tax year 2020 be subject to Connecticut income tax on the income earned while physically present in Connecticut during the tax year? Yes. Connecticut imposes a nonresident income tax on taxable income derived from or connected with sources within the state. Compensation earned for personal services rendered as an employee within Connecticut is considered Connecticut source income. As such, the income nonresidents earned while physically working in Connecticut during tax year 2020 is subject to Connecticut income tax. FAQ 6 Does the presence of nonemployees, such as partners or members in a pass-through entity, within Connecticut during tax year 2020 create nexus with Connecticut for that entity for the tax year? No. As the presence of employees in Connecticut during tax year 2020 will not create nexus for an employer, and similarly, the presence of nonemployees, such as partners or members in a pass-through entity, in Connecticut during tax year 2020 does not create nexus with Connecticut for tax year 2020. FAQ 7 Are part-year residents eligible to claim a credit for income tax paid to other states for tax year 2020? Yes. Taxpayers who were Connecticut residents during part of tax year 2020 and who worked remotely from Connecticut during their period of residency will be eligible to claim a credit for taxes paid to another state that imposed income tax on the income the taxpayers earned while working remotely in Connecticut. When claiming the credit, taxpayers should follow the guidance set forth in 2020 Form CT-1040NR/PY, Connecticut Nonresident and Part-Year Resident Income Tax Return Instructions, specifically the guidance pertaining to Line 11: Credit for Income Taxes Paid to Qualifying Jurisdictions (Part-Year Residents Only). Note that taxpayers are deemed to be part-year residents for tax year 2020 if they changed their permanent legal residence by moving into or out of Connecticut during the tax year. Ernst & Young LLP insights This relief should be taken into consideration in preparing both Connecticut corporate and personal income tax returns, as well as all other Connecticut tax returns for income earned and activities occurring during calendar year 2020. Affected taxpayers who have already filed their 2020 returns should review these relief provisions and consider filing amended returns if there are any material differences in tax liabilities. The relief provided by the new law applies to tax year 2020 liabilities only. Thus, employers and employees must consider the tax implications of Connecticut residents continuing to work from their homes in any period beginning on or after January 1, 2021. ———————————————
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