The Massachusetts Department of Revenue (DOR) announced that the temporary income tax rules for teleworkers that were put in place to minimize disruption for employers and employees during the COVID-19 state of emergency will end as of September 13, 2021. (Massachusetts DOR News, June 2021.)

Background

As previously reported (see EY Tax Alert 2020-2554), the DOR issued final regulations under 830 CMR 62.5A.3 governing the income tax withholding requirements for residents and nonresidents who are working within and outside of Massachusetts temporarily due to COVID-19. (See TIR 20-15.)

The guidance provides, in relevant part, the following:

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, § 5A and personal income tax withholding pursuant to M.G.L. c. 62B, § 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: (1) 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); or (2) 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, § 6(a). In addition, the employer is not obligated to withhold Massachusetts income tax to the extent the employer remains required to withhold income tax with respect to the employee in the other state. (See 830 CMR 62.5A.3(4).)

The temporary regulations apply to the sourcing of wages attributable to work performed commencing March 10, 2020 and remain effective until 90 days after the state lifts the COVID-19 emergency. Massachusetts Governor Charlie Baker announced that the COVID-19 emergency declaration ended on June 15, 2021.

For information on the rules currently in place, see the DOR's frequently asked questions.

Ernst & Young LLP insights

The Massachusetts temporary COVID-19 income tax rules governing teleworkers has the result of imposing Massachusetts nonresident income tax on New Hampshire residents who, during the pandemic, provided services to their Massachusetts employers from their New Hampshire homes. Because New Hampshire does not impose a personal income tax, it petitioned the US Supreme Court for relief from the Massachusetts temporary income tax rules for COVID-19.

On June 15, 2021, Massachusetts filed a supplemental brief arguing that the September 13, 2021 sunset of its temporary regulations underscores its argument that the Court should not hear the challenge. On June 28, 2021, the Supreme Court declined to hear the case.

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