APA’s Government Relations Task Force Subcommittees on IRS Issues and State and Local Topics combined efforts to ask for relief from the administrative burden of withholding income tax for employees temporarily teleworking in their home states because of the novel coronavirus (COVID-19). The requests included expanding existing exemption laws for out-of-state disaster recovery workers to all employees who are temporarily teleworking, creating new state exemptions for these workers, and asking Congress to enact nationwide relief.
The Need for Relief
The requested relief is for residents of a state who normally work in another state and have taxes withheld by their employers in the work state. APA said the individual tax burden is not likely to change because of the request (i.e., affected individuals already file income tax returns in both their state of residence and work state).
The issue concerns income sourcing rules for workers who are temporarily working in a state other than their primary work location. Absent an affirmative announcement from state tax agencies, many employers would be required to change tax withholding arrangements for employees who are now required to work from home when their home state is different from their normal work state.
The stay-at-home orders because of the COVID-19 crisis prohibit employees from traveling. To the extent that employees normally commute across state lines, these temporary travel restrictions could trigger legal requirements to change the tax withholding settings for affected employees in payroll systems.
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Alice P. Jacobsohn, Esq., is Senior Manager of Government Relations for the APA.