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Remote Worker - Employer in MA


JohnH
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Taxpayer is a resident of NC,, working remote for a company with its HQ in Massachusetts.  The employee occasionally travels to the MA office for meetings, etc.  Total number of days in MA were about 26 in 2023.  Many trips included overnight stays in MA, if that matters.  Employer only withheld NC income tax per the W-2.

I haven't yet found clear guidance on this, but can anyone tell me if MA is going to want to tax the MA portion of earnings as a Non-resident?

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Both states will want personal and business income tax, as much as they can get.

likely the employer did not consider the ramifications first, so it may require much back digging to apportion.

The recent discussion on MTC’s suggestions for modern take on 86-272 is going to be a long lasting nightmare. 

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A lot of east coast states use "convenience of the employer" to determine tax home, but I don't know about NC. MA has survived at least one court challenge to it's telecommuter tax rule:

https://www.twrblog.com/2021/06/supreme-court-denies-new-hampshires-challenge-to-massachusetts-telecommuter-tax-rule-convenience-of-the-employer-lives-to-see-another-day/ 

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1 hour ago, cbslee said:

If it was my client I would follow the W 2. I don't know if NC does W 2 matching but my state does.

I'm inclined to follow the W2, but there is a potential glitch.  The taxpayer is ultimately responsible for filing a correct return even if the employer makes a withholding mistake.   If MA does have a filing requirement for non-residents, the SOL never begins to run for an unfilled return.  If MA discovered the filing requirement in the future, they could compel a return to be filed, which would likely include penalties & interest for a late-filed return.   If at that time the NC SOL had expired, then the taxpayer would have no opportunity to amend the NC return and claim a tax credit on the NC return for all or part of the tax paid to MA.  Chances are that would never happen,  but if it did, it could be costly. 

I'm still researching, and while the situation with remote workers isn't all that unusual, I haven't yet found any definite guidance. (MA did have some interim rules during COVID, and the taxpayer met an exception of sorts, but those rules have expired. I think that is the exception Medlin referred to in the previous post) 

 

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It is the reverse of the usual. The usual is an employee not providing accurate work location.

indeed, the employee should file their return properly.

the employee must carefully consider the ramifications of enlightening the employer. But, it may just be an oversight since the employer likely already has MA payroll nexus.

Another case of lifetime employment (dealing with these things) as there is zero chance all states will agree to any common sense rules for mobile employees. My usual advice is to assume each state taxes for one millisecond or all of them (in state) unless there is an exception. Even this can be sketchy in the case where more than one entity wants a bite.

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3 minutes ago, cbslee said:

How do you file a NC return with less wages than shown on the W 2?

So are you going to have your client ask his employer to amend his W 2?

 

That’s the rub we have gone over here more than once. In this case, ot may be an oversight since the employer is based in MA. 

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If the employee is a NC resident, doesn't he report ALL wages on his NC resident income tax return? Then, can't he take a NC credit for any taxes paid on the same income to MA or any other jurisdiction? (I have only one NC client, so those are questions and NOT facts.) You said your client worked IN MA, also.

KPMG NOTE: Beginning September 15, 2021, employees working remotely outside of Massachusetts should have wages reported and taxes withheld to the state where they are physically performing services.  Employers will want to make sure they are registered for payroll in the states their employees are working remotely, and able to handle the complexity of compliance for a mobile workforce.

From the 2022 MA NRPY instructions: What Is Massachusetts Source Income for Nonresidents? The term “Massachusetts source income” is used throughout this booklet to describe the types of income which are taxable to a nonresident. A nonresident is only subject to tax on items of income derived from or effectively connected with:◗ Any trade, business, or employment carried on in Massachusetts (see the following section);...◗ All wages, salaries, tips, bonuses, fees and other compensation which relate to activities carried on in Massachusetts, regardless of where or when the compensation is paid;...

I've had decent luck calling the MA DOR.

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11 hours ago, cbslee said:

How do you file a NC return with less wages than shown on the W 2?

So are you going to have your client ask his employer to amend his W 2?

 

That's the easy part.  No need for an amended W2.  The taxpayer reports the entire income on the NC return since that's their state of residence.  Then they claim a credit on the NC return for taxes paid to MA on the MA income.  (The credit is limited to the lesser of the amount actually paid to the other state OR the amount of NC tax attributable to the income reported to the other state, calculated at the NC rate.)  NC provides a schedule designed specifically for this calculation.  

The more difficult part relates to what happens if the employer isn't pleased that the taxpayer opened this can of worms, as Medlin pointed out.  That's probably my greatest concern in this entire matter.  I'm thinking of declining the work based on that consideration alone.  

Thanks for the cites, Lion.  That's very helpful, and I will probably call MA if I decide to do the work.  

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1 minute ago, JohnH said:

The more difficult part relates to what happens if the employer isn't pleased that the taxpayer opened this can of worms, as Medlin pointed out.  That's probably my greatest concern in this entire matter.  I'm thinking of declining the work based on that consideration alone.  

In this specific case, since the employer is in MA, probable more delicate than difficult.  I suspect an oversight, maybe belief the pandemic rules were still in place, maybe new payroll person.  Normally, I would pass.  But this case, I would share the options with the potential client and let them adult.  If they want to do it right, I would take it on.

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4 minutes ago, Medlin Software, Dennis said:

In this specific case, since the employer is in MA, probable more delicate than difficult.  I suspect an oversight, maybe belief the pandemic rules were still in place, maybe new payroll person.  Normally, I would pass.  But this case, I would share the options with the potential client and let them adult.  If they want to do it right, I would take it on.

I think you nailed it. Thanks to everyone for the insights, especially at this time of year. 

 

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@JohnH

I will not be worried about employee living in NC or employer headquartered in MA. I will be looking at where end client work is being performed & that is exactly what respective states will look for.

If in fact work is performed in MA then employee will be filing MA non resident & would take MA NR tax credit in NC resident tax return. I believe this is the safest approach based on facts stated.

You should also check if NC & MA has any reciprocal agreement.

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8 hours ago, mircpa said:

@JohnH

I will not be worried about employee living in NC or employer headquartered in MA. I will be looking at where end client work is being performed & that is exactly what respective states will look for.

If in fact work is performed in MA then employee will be filing MA non resident & would take MA NR tax credit in NC resident tax return. I believe this is the safest approach based on facts stated.

You should also check if NC & MA has any reciprocal agreement.

OP said that only 26 days were work performed in MA.  Still need a MA non resident return but only for 26/280 days.

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John,

By your original post and the reference Lion gave

"KPMG NOTE: Beginning September 15, 2021, employees working remotely outside of Massachusetts should have wages reported and taxes withheld to the state where they are physically performing services.  Employers will want to make sure they are registered for payroll in the states their employees are working remotely, and able to handle the complexity of compliance for a mobile workforce." the MA company is reporting correctly. To add another wrinkle, you stated he travels to MA for meetings. Is he performing any services while in MA?  I would indeed check with the MA DOR and if a non-resident return is required, then file it with the credit to NC for taxes paid to MA. It would appear to be small amounts here.

 

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