Connecticut has passed a law that provides 2020 tax breaks only for remote workers whose wages might have been taxed by two states (HB 6516). The law provides special relief for Connecticut residents who must pay income tax for the 2020 tax year for other states that apply a version of the “Convenience of the Employer” rule, such as Connecticut residents who work for employers in Massachusetts and New York teleworked to provide relief.
Currently, six states officially mandate a version of the convenience of the employer rule: Arkansas, New York, Connecticut, 1 Delaware, Nebraska, and Pennsylvania. In response to the COVID-19 pandemic, Massachusetts released an emergency ordinance stating that income earned by a non-resident working outside of Massachusetts will be considered as source income in Massachusetts if the employee provided such services in Massachusetts prior to the COVID19 state of emergency rendered.
In general, states that employ the convenience of employers’ rule treat wages paid to non-resident teleworkers as wages drawn to that state when the worker teleworks for his or her personal convenience. Wordings may vary slightly, but Nebraska mandates a fairly standard version of the convenience of employer rule that can be viewed as a representative example. In general, Nebraska can only tax foreigners for providing services in Nebraska. However, “when the non-resident service is conducted outside of Nebraska for his or her convenienceHowever, since the service is directly related to any business, trade, or occupation carried on in Nebraska and the service could have been provided in Nebraska, apart from the convenience of the non-resident, the compensation for those services will be Nebraska. “2 In other words, Nebraska – and other employers state conveniences – can tax a non-resident for out-of-state work if such work was performed out of state for the convenience of the worker.
Connecticut Bill Special Terms
The bill provides Connecticut residents with full credit for income taxes paid to another state if the Connecticut resident worked in Connecticut but paid income tax to another state because that other state simplifies the employer rule. This relief was not granted by Connecticut under prior law.
Specifically, the bill provides that for the tax year beginning January 1, 2020, “any resident who has paid income tax to another state that uses the convenience of employers’ rule will be granted a credit on that resident’s income tax credit in the Connecticut tax that paid to another state on income such resident earns while working remotely “from Connecticut.
The bill also provides for full credit to be granted in the 2020 tax year for “any resident who has paid income tax to another state that has enacted a law or regulation requiring a non-resident worker to pay non-resident income tax to pay that other state on income. ” earned while such non-resident employee was working remotely from that state due to COVID-19 if that non-resident was doing such work in another state immediately prior to March 11, 2020. “This provision of the bill appears to be a clear response to the Emergency Ordinance passed by Massachusetts.
Finally, the bill also stipulates that Connecticut will not consider the activities of employees who worked remotely in Connecticut during tax year 2020 due to COVID-19 in order to determine if an employer is connected to Connecticut (and therefore possibly the corporate level subject to) state taxation).
It should be noted that the scope of the bill’s relief is limited to 2020 only: Connecticut income tax credits are only eligible for taxes paid to any other state that simplifies the employer’s rule (or something similar) for the 2020 tax Year. This was highlighted in a bulletin issued by the Connecticut Treasury Commissioner.3 The bill thus represents a temporary measure aimed at relieving Connecticut residents who may otherwise experience double taxation during the 2020 COVID-19 pandemic would be exposed. Although the relief provided by the bill is temporary, it is not negligible. The Connecticut Office of Fiscal Analysis estimates that Connecticut residents would owe approximately $ 300 million more in personal income tax payments for the 2020 tax year if the credit did not apply.
The convenience of employers’ doctrine and the right of states to impose taxes on non-resident teleworkers will continue to be an issue. New Hampshire filed a lawsuit in the U.S. Supreme Court challenging Massachusetts’ tax on non-residents who provided such services in Massachusetts prior to the COVID-19 pandemic. While the Supreme Court is deciding whether to hear the case, several states, including Connecticut, have filed an amicus letter in support of New Hampshire’s position. In the Amicus Brief, the Amici sum up the ongoing importance of the subject: “To avoid problems of double taxation, many states that levy income taxes give their residents some or all of their residents’ credit for taxes paid to other states, Massachusetts or others States can levy taxes directly on the income of non-residents who work from home, which has an impact on the state’s billions in tax revenues. “4
1. It should be noted that the convenience of the Connecticut-imposed Employer Rule is unique in that Connecticut only collects such tax on non-residents resident in a state that also uses the convenience of the Employer Rule.
2. 316 Neb. Admin. Code § 22-003.01C (1) (emphasis added).
3. Connecticut Department of the Treasury, Commissioner’s Bulletin: Connecticut Senate Adopts HB No. 6516 and Immediately Submits Legislation to Governor Lamont (published March 5, 2021).
4. Amicus Curiae letter for the states of New Jersey, Connecticut, Hawaii and Iowa, available at https://www.nj.gov/oag/newsreleases20/2020-1222-NH-v-MA-Amicus-Brief.pdf.
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.