Frost Law
On May 4, 2020, the Comptroller of Maryland issued a Tax Alert providing guidance regarding employer withholding requirements for teleworking employees during the COVID-19 health emergency.¹ The Tax Alert also addresses many questions in an FAQ format which the Comptroller received as a result of the current crisis. Note that this Tax Alert supersedes the previous alert issued on May 1 which provided guidance on corporate and individual income tax withholding requirements for teleworking employees due to the pandemic.
The Tax Alert clarified that Maryland employer withholding requirements are unaffected “by the current shift from working on the employer’s premises to teleworking because taxability is determined by the employee’s physical presence.”²
As explained in the Tax Alert, generally, employers must comply with Maryland’s withholding requirement for employees: (1) domiciled in Maryland; (2) statutory Maryland residents; and (3) non-residents who receive Maryland-sourced income (i.e., the income is compensation for services performed in Maryland.)
Furthermore, the Tax Alert provided that residents of those states which have reciprocal agreements with Maryland are exempt from the Maryland income tax; thus, they aren’t subject to withholding either. Note, however, that the Comptroller is clear that compensation paid to residents of states lacking a reciprocal agreement, who are teleworking in Maryland, will be subject to withholding because they are receiving Maryland-sourced income.
Finally, the Tax Alert emphasized its ongoing commitment to make fair determinations based on the specific facts and circumstances of each taxpayer under review. While the Comptroller noted that it does not plan to alter the facts and circumstances consistently applied in nexus or income sourcing determinations, it stated that:
the Office understands that many businesses have been required or otherwise found it necessary during the COVID-19 health emergency to temporarily alter their workplace model and deployment of their employees. The Office further understands that this was done in order to comply with the various gubernatorial executive orders and health department and CDC recommendations on social distancing. Consequently, the Office will recognize the temporary nature of a business’ interim workplace model and employee deployment in light of and during the current health emergency and will not use these temporary measures to impose business nexus, to alter the business income, or to impose additional withholding requirements on the employer.”³
Again, the Tax Alert provides helpful FAQs in response to the many questions which the Comptroller received as a result of the current crisis:
My business is based in Virginia with offices in Maryland and Washington D.C. Both of my employees are Maryland residents. Generally, one works in the Maryland office and the other in the Washington D.C. office. Both are presently teleworking in Maryland. Do I have a Maryland withholding requirement?
Yes. Your employees are Maryland residents and are subject to tax on all income earned.
My business is based in Maryland with offices in Virginia and Washington D.C. Both of my employees are Maryland residents. One works in the Maryland office and the other in the Washington D.C. office. Do I have a Maryland withholding requirement?
Yes. Your employees are Maryland residents and are subject to tax on all income earned.
My business is based in Virginia with offices in Maryland and Washington D.C. Both of my employees are Virginia residents. Generally, one works in the Maryland office and the other in the Washington D.C. office. Both are teleworking in Virginia. Do I have a Maryland withholding requirement?
No. Your employees are not Maryland residents and they are not performing services in the state. Even if they were providing services in the state, they would be exempt from withholding due to Maryland’s reciprocal agreement with Virginia.
My business is based in Delaware with an office in Maryland. My employee resides in Delaware but generally works in the Maryland office. He is currently teleworking in Delaware. Do I have a Maryland withholding requirement?
Yes. Delaware has not entered into a reciprocal agreement with Maryland. You have a withholding requirement for the wages paid as compensation for services rendered in the Maryland office because it is Maryland-sourced income, but no withholding requirement for the wages paid as compensation during the time your employee is teleworking.
My business is based in Delaware with an office in Maryland. My employee resides in Delaware but generally works in the Maryland office. He is currently teleworking in Maryland. Do I have a Maryland withholding requirement?
Yes. Delaware has not entered into a reciprocal agreement with Maryland. You have a withholding requirement for the wages paid as compensation for services rendered in the Maryland office and those paid for services rendered while teleworking in Maryland.⁴
If you need help with reorganizing your business under Subchapter V, give us a call at 410-862-2890 or contact our team online.
On May 4, 2020, the Comptroller of Maryland issued a Tax Alert providing guidance regarding employer withholding requirements for teleworking employees during the COVID-19 health emergency.¹ The Tax Alert also addresses many questions in an FAQ format which the Comptroller received as a result of the current crisis. Note that this Tax Alert supersedes the previous alert issued on May 1 which provided guidance on corporate and individual income tax withholding requirements for teleworking employees due to the pandemic.
The Tax Alert clarified that Maryland employer withholding requirements are unaffected “by the current shift from working on the employer’s premises to teleworking because taxability is determined by the employee’s physical presence.”²
As explained in the Tax Alert, generally, employers must comply with Maryland’s withholding requirement for employees: (1) domiciled in Maryland; (2) statutory Maryland residents; and (3) non-residents who receive Maryland-sourced income (i.e., the income is compensation for services performed in Maryland.)
Furthermore, the Tax Alert provided that residents of those states which have reciprocal agreements with Maryland are exempt from the Maryland income tax; thus, they aren’t subject to withholding either. Note, however, that the Comptroller is clear that compensation paid to residents of states lacking a reciprocal agreement, who are teleworking in Maryland, will be subject to withholding because they are receiving Maryland-sourced income.
Finally, the Tax Alert emphasized its ongoing commitment to make fair determinations based on the specific facts and circumstances of each taxpayer under review. While the Comptroller noted that it does not plan to alter the facts and circumstances consistently applied in nexus or income sourcing determinations, it stated that:
the Office understands that many businesses have been required or otherwise found it necessary during the COVID-19 health emergency to temporarily alter their workplace model and deployment of their employees. The Office further understands that this was done in order to comply with the various gubernatorial executive orders and health department and CDC recommendations on social distancing. Consequently, the Office will recognize the temporary nature of a business’ interim workplace model and employee deployment in light of and during the current health emergency and will not use these temporary measures to impose business nexus, to alter the business income, or to impose additional withholding requirements on the employer.”³
Again, the Tax Alert provides helpful FAQs in response to the many questions which the Comptroller received as a result of the current crisis:
My business is based in Virginia with offices in Maryland and Washington D.C. Both of my employees are Maryland residents. Generally, one works in the Maryland office and the other in the Washington D.C. office. Both are presently teleworking in Maryland. Do I have a Maryland withholding requirement?
Yes. Your employees are Maryland residents and are subject to tax on all income earned.
My business is based in Maryland with offices in Virginia and Washington D.C. Both of my employees are Maryland residents. One works in the Maryland office and the other in the Washington D.C. office. Do I have a Maryland withholding requirement?
Yes. Your employees are Maryland residents and are subject to tax on all income earned.
My business is based in Virginia with offices in Maryland and Washington D.C. Both of my employees are Virginia residents. Generally, one works in the Maryland office and the other in the Washington D.C. office. Both are teleworking in Virginia. Do I have a Maryland withholding requirement?
No. Your employees are not Maryland residents and they are not performing services in the state. Even if they were providing services in the state, they would be exempt from withholding due to Maryland’s reciprocal agreement with Virginia.
My business is based in Delaware with an office in Maryland. My employee resides in Delaware but generally works in the Maryland office. He is currently teleworking in Delaware. Do I have a Maryland withholding requirement?
Yes. Delaware has not entered into a reciprocal agreement with Maryland. You have a withholding requirement for the wages paid as compensation for services rendered in the Maryland office because it is Maryland-sourced income, but no withholding requirement for the wages paid as compensation during the time your employee is teleworking.
My business is based in Delaware with an office in Maryland. My employee resides in Delaware but generally works in the Maryland office. He is currently teleworking in Maryland. Do I have a Maryland withholding requirement?
Yes. Delaware has not entered into a reciprocal agreement with Maryland. You have a withholding requirement for the wages paid as compensation for services rendered in the Maryland office and those paid for services rendered while teleworking in Maryland.⁴
If you need help with reorganizing your business under Subchapter V, give us a call at 410-862-2890 or contact our team online.
