New Hampshire vs Massachusetts - Non-Residence Income

[lovetaxes]

I am located in NH on the border to Massachusetts. Every year I have to apportion wages for NH residence who work for MA companies but oftentimes work out of their NH residence or travel outside MA and do not have to pay MA taxes on income earned outside of that state.

For 2020 MA (and other similar states) have stated that they will consider ALL work for a MA company to be taxable to MA. The reason stated is the Corona-19 virus, which has many employees having to work from their homes.

NH's Governor has filed a suit against MA, however, it appears this suit will not be settled until after the 2020 tax season filing deadline. This creates a significant problem for employees who have always had to apportion their wages in and out of MA, plus it now effects the taxes of ALL such employees working from their homes, employed by MA companies due to the virus..

Is there a way to get a consensus on how to best deal with this issue so that all preparers are reacting in a similar way? I'm concerned that if we have no guidance on this matter we will each attempt to handle the matter differently, creating a potentially more serious problem for everyone.

Our clients will be frustrated and many tax returns may need to be amended needlessly.

I appreciate the assistance I've received from the Lacerte Support experts in the past. I sincerely hope there is a solution we can all use as we begin to file tax returns in a month or so.

Sincerely,

O.E. (Bob) Bellerose, EA

[itonewbie]

This is not entirely unusual.  Among the couple states that levy taxes on telecommuters, NYS is especially notorious for its tax position, which had been challenged and upheld in courts.  NYS' authority to levy tax on telecommuters is reliant on the test of whether the arrangement is for the convenience of the employer. 

The difference is that MA's new rule is temporary and is applicable regardless of whether the arrangement is for the convenience of the employer - it is instituted to maintain the status quo given the circumstances.  In other words, employees are not any worse off.  Given NH doesn't have an income tax on wages, they are not even subject to double taxation - this will not be the case if you have someone working in CT for a NY employer.

For now, it would look like biting the bullet and continuing to pay MA tax would be the way to go.  This should also help ensure the employee will be entitled to unemployment benefits if the need ever arises and avoid unnecessary legal challenges.

You won't find any advice from Intuit, which is not in the business of providing technical or legal guidance.  I doubt you'd find tax practitioners banding together and taking a contrary position to what the MA rule says.  If the court overrules MA, your clients can always file a refund claim.

[lovetaxes · Accepted solution]

Good afternoon itonewbie,

I can't thank you enough for your clarification. I've contacted both MA/NH tax departments without a clarification on how to proceed. In fact MA DOR stated that the 2020 MA NR tax forms wouldn't have a place to apportion income for anyone this year. This was  disturbing to me for the clients whose apportionment has nothing to do with the virus are penalized. They apparently are simply taking a position that will affect all out of state employees, virus or not.

I will follow your sage advice. Now I can advise clients that  we won't be apportioning their MA earned income until and unless the matter pending is resolved. Should this be the case after filing, we will  amend their MA tax returns accordingly.

By the way, I hadn't thought of the possibility that employee's MA Unemployment could be seriously effected should the income not be considered "MA income".

And I thought I knew everything! Much more humble as I proceed into 2021. Happy new year to you and your family.

Bob 

[itonewbie]

NP, @lovetaxes!  Glad my $0.02, which usually is worth less than par value, helped.  Happy new year to you and your loved ones too!

If the response answers your question, please consider marking it the solution to help others who may have similar questions.  Cheers!

[Accountant-Man]

When this issue was first appearing, I think I saw an article about whether or not MA would continue to allow historical allocations to NH, thereby eliminating some of the pain to NH residents.

Has that been discussed?

EG, if the employee typically worked at home 20% of the time, before COVID, could they still use that 20%? And what would be required for historical "proof?" One year? Two years?

[Josh9331]

Massachusetts issued guidance on how to manage this: 

https://www.mass.gov/technical-information-release/tir-20-15-revised-guidance-on-the-massachusetts-t...

You can claim based on apportionment ratio in 2019 or early 2020.