MA Resident has MD and MA taxes withheld

Grateful2002 · ‎03-21-2023

The taxpayer is a MA resident, her duty station was in MD. She is an attorney for DOD.

The taxpayer has MD and MA taxes withheld. She said that she was teleworking. That means that she was living and working in MA, but her duty station was in MD. No other connection to MD. She never lived in MD. I understand why the employer withheld MD taxes since seems MD requires for employers to do so for nonresidents from the states Maryland has no reciprocal agreements with.

My question is, would the income considered to be MD sourced? We need to file MD Nonresident, but it makes a difference if we can claim a full refund of all MD taxes paid, or if we get a credit on MA resident return ( MA only gives a partial credit).

This MD tax announcement supposedly provides the answer. But this is confusing.

https://www.marylandtaxes.gov/.../TaxAlert050420...

The announcement seems to explain that MD did not change it's business nexus rules due to COVID 19. Only employee income earned while physically present in MD is MD income.

But, I am attempting to reconcile two sections in the announcement.

"Maryland employer withholding requirements are not affected by the current shift from working on the employer’s premises to teleworking because taxability is determined by the employee’s physical presence. ... Income is deemed Maryland-sourced income when the income is compensation for services performed in Maryland. "

Ok, great, so taxability is determined by physical presence of the employee. But then it says as an example:

"...Unlike the aforementioned states, Delaware has not entered into a reciprocal agreement with the state of Maryland. Compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to withholding."

Maryland nonresident = Delaware resident, "teleworking in Maryland" This is ambiguous. How do you "telework" in Maryland if you are a nonresident working from Delaware? Why call this example out at all? If the point is to say any nonresident that is working remotely and physically not in Maryland is not Maryland-sourced income, then this example is not very good.

So is that not MD sourced income then?