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Tax Law

COVID-19 Telework Triggers State Tax Withholding Guidance

With the majority of the nation facing limitations on business travel and mandatory stay-at-home orders, states and localities are beginning to issue guidance on the impact that COVID-19 disruptions will have on withholding obligations for multistate employers. Some states have responded to COVID-19 telework requirements in a variety of ways:

  • New Jersey and Mississippi have altered their withholding policies to allow businesses to retain their same withholding for employees’ temporary pandemic-related telework location. In general, businesses likely will not incur new withholding obligations in these states as a result of in-state teleworkers who regularly work out-of-state.
  • Minnesota and Maryland issued guidance indicating that teleworkers may create new withholding obligations. Businesses in these states may need to change their withholding to reflect employees’ states of residence as their place of work. However, Maryland’s reciprocity agreements with most neighboring states could mean few changes for Maryland employers.
  • Ohio passed legislation providing that pandemic-related remote work does not count toward the 20-day withholding threshold for municipal income taxes.
  • For corporate income tax purposes (as opposed to withholding), the District of Columbia, Indiana and North Dakota indicated that they will not impose corporate income tax nexus due to the temporary presence of new teleworkers without specifying what impact this will have on withholding obligations.

This legal alert reviews some of the recent COVID-19 withholding guidance issued by states and localities so far, including its potential impact on employers and employees.