Does Your Company’s New “Work from Home Normal” Create New State Tax Obligations?– May 07, 2020 by Hannah Prengler

Over the past several weeks, there has been a significant shift from working in the office to working from home as businesses and employees comply with "stay at home" orders across the country. However, businesses that have employees teleworking outside the office could be creating a “presence,” or nexus, in new locations — resulting in new tax obligations.

When and Where to Withhold Income Tax on Wages Earned

Businesses must consider where they may be required to withhold income tax on wages earned by employee teleworking. Should an employer withhold at the location where they have traditionally withheld (e.g., employer’s office location) or look to an employee’s residence while they work from home?

State rules vary around where withholding is required. However, a handful of states have begun to issue guidance regarding the impact of the COVID-19 pandemic on employer withholding responsibilities. They have advised employers that they do not need to begin withholding in new jurisdictions merely due to employees temporarily teleworking during the pandemic. Further, state guidance has reminded taxpayers about existing state reciprocity agreements. Some states have agreements with neighboring states that only require withholding to be remitted to the employee’s state of residence when an employee commutes across state lines to an employer’s place of business.

How Does Working from Home Impact Income/Franchise and Sales/Use Tax?

Additionally, businesses must consider the impact new teleworkers have on their income/franchise tax and sales use tax filing responsibilities. Nexus is most often triggered by property or people working within a state. And while many businesses may have historically claimed an income tax exemption under PL 86-272, this federal protection only applies to salespeople selling tangible personal property within a state. Due to COVID-19, many employees are performing many additional responsibilities offsite, which are likely unprotected activities.


On a positive note, states are beginning to consider how the workplace has changed and the nexus predicament employers are facing. Of the handful of states that have issued guidance to date, many have addressed income tax or withholding tax, but largely have not addressed nexus for all types of taxes.

>> Find which jurisdictions have issued guidance to date in our “Teleworking Employees/SALT Nexus - COVID-19 Relief” chart.

Contact Hannah Prengler at hprengler@cohencpa.com or a member of your service team to discuss this topic further.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.