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Latest Development in Telecommuter Tax: Updates on Massachusetts and Connecticut

itonewbie
Level 15

Light is starting to emerge at the end of the tunnel for telecommuters who could be exposed to double taxation?

It is reported by taxnotes that MA DoR has just drafted a directive, not to change its position on the taxation of nonresidents who telecommute due to the pandemic, but to allow its own residents who are subject to similar telecommuter tax of other states a credit on their MA returns.  The directive also provides guidance on how nonresident telecommuters, who would otherwise have worked within and without the state of MA, if not for the pandemic, could apportion and source their wages.

Meanwhile, CT governor and the Finance Committee of the legislature are advancing SB873 that would offer some reprieve to CT residents who telecommute, by allowing them a credit on the CT return for taxes paid to the employer's state.

Most notably, the provisions in the CT bill go beyond addressing the exposure created by pandemic-induced telecommuter tax, such as the one imposed by MA, and make available the same credit to CT telecommuters who have long been subject to double taxation as a result of the "convenience of the employer rule" -- NYS comes to mind.

To date, CT residents telecommuting from CT are exposed to double taxation because CT statutes and admin code only allow a credit to be claimed for taxes paid to another state if the income is sourced to the other state based on its own rules that apply to nonresidents.  Since wages related to work performed by nonresidents within the state of CT are generally CT-sourced, wages attributable to work performed by CT residents within CT, albeit telecommuting for an out-of-state employer, are sourced to the state of CT and, therefore, not eligible for the credit.

It sounds like the priority for MA and CT now is to provide relief to their own residents who may otherwise be subject to double taxation.  Imagine what compliance enforcement (and the political ramifications) could be like if folks are really out of pocket for double taxation.  It may not look like a complete victory for taxpayers because, for example, CT residents who telecommute with MA will still be left with residual CT tax due to the tax differential but this arrangement equalizes their liabilities back to the status quo.  This is probably just one move in a chess game.  States are unlikely to give up their first right to tax an income based on where work is performed without a fight.  It wouldn't be a stretch to think that they still have their eyes on the Supreme Court case.

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Still an AllStar
2 Replies 2
BobKamman
Level 14

That light at the end of the tunnel is an oncoming train.  

itonewbie
Level 15

Don't disagree with that, lol.

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Still an AllStar