Personal Income Tax Implications of COVID-19 & Remote Employment

BY: Harrison Fregeau, RBFL Editor

When the pandemic caused by the novel coronavirus (“COVID-19”) struck the United States in March of 2020, many workers, particularly white-collar office workers, began to work from home. This movement to a work-from-home environment produced interesting state tax consequences for those whose homes were in different states than their workplace offices. These issues are of particular importance for states where there is a lot of daily commuting from nearby states into a key metropolis (think of Wisconsin and Indiana residents commuting to Chicago, Maryland and Virginia residents commuting to Washington D.C. or Connecticut and New Jersey residents commuting to New York City). Should the trend towards long-term work-from-home flexibility continue following the eventual end of the COVID-19 pandemic, states’ decisions on whether to tax out-of-state workers teleworking into their state could have critical impacts on state and local finances. 

This issue is particularly acute for closely adjacent states which have notably differing levels of state and local taxation. An example of this boiled over in 2021 when New Hampshire sued Massachusetts alleging that Massachusetts wrongfully taxed New Hampshire residents telecommuting to Massachusetts. The number of people affected by this is not insubstantial, as prior to COVID-19, the State of New Hampshire estimated that over 12% of its workers commuted to Massachusetts. For these workers, and for the two states involved, the question of how teleworking was to be taxed provoked critical questions of tax arbitrage, double taxation, state sovereignty, and public policy. For example, in its Brief to the Supreme Court, New Hampshire claimed Massachusetts intruded upon its sovereignty by assessing taxes on individuals who had not left New Hampshire during the year, and thus had made no use of services supported by Massachusetts income tax. From Massachusetts’s perspective however, taxing these suddenly out-of-state workers was critical, as it was the dynamic Massachusetts economy that caused employers to found or relocate businesses to the Commonwealth in the first place. 

Though the Supreme Court ultimately declined to hear the case in June 2021, and the issue seems to have subsided as Massachusetts temporarily changed its nexus rules to accommodate COVID-related telecommuters, this issue is likely to not go away. For one thing, even following the Omicron variant, many large firms continue to offer a much higher share of their positions remotely. Additionally, while the Supreme Court declined to hear the case in its original jurisdiction capacity, the case might well make its way through the state courts to the Supreme Court on its merits. Above all, the issue likely will not go away due to powerful incentives to practice tax arbitrage. For example, a resident of Vancouver, Washington working in Portland, Oregon (ten miles apart from one another) has tremendous incentive to be classified as working from home in Washington (which has a state sales tax but no state income tax) rather than in Oregon (which has a state income tax, but no state sales tax). Regardless of how it resolves, this question will be one to watch. 


Key Sources: 

New Hampshire v. Massachusetts, SCOTUSblog: Indep. News & Analysis on the U.S. Sup. Ct., (June 28, 2021), 

See Edward A. Zelinsky, Taxing Interstate Remote Workers After New Hampshire v. Massachusetts: The Current Status of the Debate, 656 Cardozo Legal Stud. Rsch. Paper 1, 11 (Oct. 4, 2021).  

State of New Hampshire, Motion for Leave to File Bill of Complaint, New Hampshire v. Massachusetts, (Oct. 19, 2020) 1,. 20-5: Massachusetts Department of Revenue, Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic, (Apr. 21, 2020). TIR 20-5: Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic |

Commonwealth of Massachusetts, Brief in Opposition to Motion for Leave to File Complaint, New Hampshire v. Massachusetts, 1. 


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