August 10, 2021
New Jersey ends teleworker business tax nexus and income tax withholding relief for COVID-19 effective October 1, 2021
On August 3, 2021, the New Jersey Division of Taxation announced that its COVID-19 temporary guidelines for establishing sales tax/Corporation Business Tax (CBT) nexus and income tax withholding liability in connection with teleworkers will expire on and after October 1, 2021. (See EY Tax Alert 2020-1264.)
Income tax withholding for teleworkers
Under the normal rules, New Jersey requires that income be sourced to the state based on where the service or employment is performed using a day's method of allocation. However, during the temporary period of the COVID-19 pandemic, the Division stated that wage income would continue to be sourced based on the employer's jurisdiction. (The Division noted that because of the reciprocal agreement between New Jersey and Pennsylvania, New Jersey nonresident income tax is not required on wages for services performed within New Jersey by Pennsylvania residents.)
When asked if the Division would advise New Jersey employers to not change the current work-state set-up for employees in their payroll systems who, due to COVID-19, were telecommuting or temporarily relocated at an out-of-state employer location, the Division responded that it would not require employers to make that change for this temporary situation; however, employers were urged to consider their unique circumstances and make that decision.
This temporary relief ends October 1, 2021. Accordingly, effective October 1, 2021, employers should resume sourcing income based on where the teleworker's service or employment is performed and withhold New Jersey income tax from wages sourced to New Jersey.
For information on proper wage withholding, see the New Jersey Income Tax Withholding Instructions (NJ-WT) .
Corporation Business Tax (CBT) Nexus
The Division temporarily waived the CBT nexus standard which is generally met if an out-of-state corporation has an employee working in New Jersey. Thus, as long as the out-of-state corporation did not otherwise meet any of the factors giving rise to nexus, other than employees working from home in New Jersey solely due to COVID-19, the Division did not consider the out-of-state corporation to have nexus for purposes of the CBT.
Effective on and after October 1, 2021, the pre-pandemic CBT standard applies whereby an employee working from home creates CBT because working at a location within New Jersey is considered a physical presence within New Jersey. (See TB-79R.)
Sales tax nexus
In connection with COVID-19, the Division temporarily waived the sales tax nexus standard which is generally met if an out-of-state seller has an employee working within New Jersey. Accordingly, provided an out-of-state seller did not maintain any physical presence in New Jersey, other than employees working from ome in New Jersey due to COVID-19, and was below the economic activity thresholds enacted by P.L. 2018, c. 132, the Division did not consider the out-of-state seller to have nexus for sales tax purposes.
Effective on and after October 1, 2021, the pre-pandemic sales tax nexus standard applies whereby an employee working from home creates sales tax nexus for an employer because working at a location in New Jersey is considered a physical presence within New Jersey. (See TB-78R.)
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