The COVID-19 pandemic has caused scores of employees to move out of state and work remotely. Typically, when an employee relocates to a new state and business is being conducted across state lines, a nexus is enforced. A nexus is fancy word that simply implies a connection between states—and when it is enforced, it may affect your taxes including:
- corporate taxes
- sales taxes
- income taxes
- payroll taxes
Here, we’ll focus only on income taxes and payroll taxes; this guide walks you the requirements, so you know what you should withhold from your employees’ paychecks.
Due to the unusual nature of the COVID-19 pandemic and its effect on the workforce, many states have released state-specific instructions on how to pay employees who are working within their borders (but are employed by businesses that are established elsewhere) during the pandemic.
For example: if your business is located in State A and you have an employee who typically works in State A, but has relocated to State B due to the COVID-19 pandemic and is working remotely; should you, the employer, withhold State B payroll and income taxes?
Well … it depends on the state.
Below is a state-by-state guide detailing withholding requirements (this will be updated as new states issue direction).
Alabama
In the case that your business is located outside of Alabama, but your employee has temporarily moved to Alabama and is working from there:
Should you withhold Alabama state income and payroll taxes?
No.
In the case that your business is located within Alabama, but your employee has temporarily moved to out of state and is working remotely (outside of Alabama):
Should you withhold Alabama state income and payroll taxes?
No.
During the COVID-19 pandemic, Alabama will not change withholding requirements for businesses based on an employee’s temporary remote work location that is related to the pandemic or to federal or state measures that have been implemented to control its spread.
Find more information here.
Alaska
No COVID-19 guidance has been issued yet.
Arizona
No COVID-19 guidance has been issued yet.
However, it’s worth noting that even in regular times, Arizona has a reciprocity agreement with these states:
- California
- Indiana
- Oregon
- Virginia
This means that if a resident of one of the states listed above works in Arizona, that employee is not subject to Arizona income or payroll taxes. The opposite is also true: If an employee is a resident of Arizona but works in one of the states listed above, the employee would only be subject to Arizona taxes.
Arkansas
No COVID-19 guidance has been issued yet.
California
No COVID-19 guidance has been issued yet.
Colorado
No COVID-19 guidance has been issued yet.
Connecticut
No COVID-19 guidance has been issued yet.
Delaware
No COVID-19 guidance has been issued yet.
District of Columbia
No COVID-19 guidance has been issued yet.
However, D.C. has a reciprocity agreement with every state in the country, so if an employee is a resident of any state within the U.S. and is working from D.C., that employee will not be subject to D.C. tax withholdings.
The opposite is only true for Maryland: If a resident of D.C. is working in Maryland, that employee would not be subject to Maryland tax withholdings.
Florida
No COVID-19 guidance has been issued yet.
Georgia
In the case that your business is located outside of Georgia, but your employee has temporarily moved to Georgia and is working from there:
Should you withhold Georgia state income and payroll taxes?
No.
The state of Georgia will not use someone’s relocation (as long as the relocation has occurred as a direct result of temporary remote work requirements arising from the pandemic) as the basis for establishing Georgia nexus. If an employee is temporarily working in Georgia, wages earned during this time will not be considered Georgia income and therefore the employer is not required to withhold Georgia income tax.
However, if the employee remains in Georgia after the temporary remote work requirement has ended (whether voluntarily or if required by the employer), the normal rules for determining nexus, the employee’s wages, and the employer’s income tax withholding obligation will apply.
In the case that your business is located within Georgia, but your employee has temporarily moved out of state and is working remotely (from outside of Georgia):
Should you withhold Georgia state income and payroll taxes?
Yes.
Wages paid to a nonresident employee that typically works in Georgia but is temporarily working in another state are considered Georgia wages and the employer should continue to withhold Georgia income taxes.
Find more information here.
Hawaii
No COVID-19 guidance has been issued yet.
Idaho
No COVID-19 guidance has been issued yet.
Illinois
In the case that your business is located outside of Illinois, but your employee has temporarily moved to Illinois and is working from there:
Should you withhold Illinois state income and payroll taxes?
Yes.
The Illinois Department of Revenue released a new income tax withholding law on January 1, 2020 and will not provide COVID-19-related exceptions. Out-of-state employers must withhold Illinois income tax from the wages of any employee who physically works in Illinois for more than 30 days in 2020—even those who are working from home due to stay-at-home orders under COVID-19.
This excludes businesses that are located in states who have reciprocity with Illinois:
- Iowa
- Kentucky
- Michigan
- Wisconsin
This also excludes businesses that are already registered for Illinois payroll tax withholding.
Find more information here.
Indiana
In the case that your business is located outside of Indiana, but your employee has temporarily moved to Indiana and is working from there:
Should you withhold Indiana state income and payroll taxes?
No.
In the case that your business is located within of Indiana, but your employee has temporarily moved out of state and is working remotely (from outside of Indiana):
Should you withhold Indiana state income and payroll taxes?
No.
The Indiana Department of Revenue will not use someone’s relocation that is the direct result of temporary remote work requirements arising from and during the COVID-19 pandemic health crisis, as the basis for establishing Indiana nexus.
However, if an employee remains in Indiana after the temporary remote work requirement has ended, nexus may be established and Indiana state tax withholdings will begin.
Find more information here.
Iowa
In the case that your business is located outside of Iowa, but your employee has temporarily moved to Iowa and is working from there:
Should you withhold Iowa state income and payroll taxes?
Yes.
Iowa individual income tax and withholding requirements have not been modified by the COVID-19 pandemic. Compensation for services rendered within Iowa is subject to Iowa income tax, unless there is a specific provision of Iowa law that exempts the employee.
Illinois residents who are working from Iowa are exempt from Iowa tax withholdings because these states have a reciprocity agreement.
In the case that your business is located within Iowa, but your employee has temporarily moved out of state and is working remotely (from outside of Iowa):
Should you withhold Iowa state income and payroll taxes?
Yes.
Employees who typically work in Iowa but are temporarily telecommuting in another state may need to adjust their income apportionment or their Iowa income tax return filing requirement. However, if an employee is working in Illinois, that employee will be exempt from Iowa tax withholdings because of the reciprocity agreement.
Find more information here.
Kansas
No COVID-19 guidance has been issued yet.
Kentucky
No COVID-19 guidance has been issued yet.
Louisiana
No COVID-19 guidance has been issued yet.
Maine
No COVID-19 guidance has been issued yet.
Maryland
In the case that your business is located outside of Maryland, but your employee has temporarily moved to Maryland and is working from there:
Should you withhold Maryland state income and payroll taxes?
Yes.
In Maryland, taxability is determined by an employee’s physical presence. This means that income paid to a Maryland nonresident who is teleworking in Maryland is considered Maryland-sourced income and is subject to withholding.
However residents of states who have reciprocity with Maryland are excluded from this. This means residents from the following states who are working in Maryland are exempt from Maryland state income tax.
- Virginia
- Washington D.C.
- West Virginia
- Pennsylvania
It’s important to note that Delaware has not entered into a reciprocal agreement with the state of Maryland, so Delaware residents who are working in Maryland are not exempt from Maryland state income tax.
Find more information here.
Massachusetts
In the case that your business is located outside of Massachusetts, but your employee has temporarily moved to Massachusetts and is working from there:
Should you withhold Massachusetts state income and payroll taxes?
No.
A resident employee who is working in Massachusetts due to a state’s COVID-19 state of emergency and who continues to pay taxes in that other state will be eligible for a credit for taxes paid to that other state. In addition, the employer is not obligated to withhold Massachusetts income tax for the employee to the extent that the employer remains required to withhold income tax with respect to the employee in such other state.
Find more information here.
Michigan
No COVID-19 guidance has been issued yet.
However, Michigan has reciprocity agreements with a number of states.
If a Michigan resident is remotely working in one of these states, that resident is only subject to Michigan tax withholdings—not to tax withholdings within these states.
The opposite is also true, if a resident of one of these states is remotely working from Michigan, they would only be subject to tax withholdings within the state they reside.
The following are states that have reciprocity agreements with Michigan:
- Illinois
- Indiana
- Kentucky
- Minnesota
- Ohio
- Wisconsin
Minnesota
In the case that your business is located outside of Minnesota, but your employee has temporarily moved to Minnesota, and is working from there:
Should you withhold Minnesota state income and payroll taxes?
No.
In regular times, an employer derives income from sources in Minnesota must withhold for employees. However, during the COVID-19 pandemic Minnesota will not seek to establish nexus for business income tax or sales and use tax solely because an employee is temporarily working from home within the state due to circumstances caused by the pandemic.
Find more information here.
Mississippi
In the case that your business is located outside of Mississippi, but your employee has temporarily moved to Mississippi and is working from there:
Should you withhold Mississippi state income and payroll taxes?
No.
In the case that your business is located within Mississippi, but your employee has temporarily moved out of state and is working remotely (from outside of Mississippi):
Should you withhold Mississippi state income and payroll taxes?
It depends on what you were doing before.
During the period of national COVID-19 emergency, Mississippi will not change withholding requirements for businesses based on the employee’s temporary telework location.
In typical times, Mississippi residents are taxable on their total income, regardless of where they work. However, during the COVID-19 pandemic, Mississippi will not impose any new withholding requirements on the employer and will not use any changes in the employees temporary work locations due to the pandemic to impose nexus while temporary telework requirements are in place.
Find more information here.
Missouri
No COVID-19 guidance has been issued yet.
Montana
No COVID-19 guidance has been issued yet.
However, Montana has reciprocity agreement with North Dakota which means that a resident of one state can work in the other state and only be subject to tax withholdings within the state of residence.
Nebraska
In the case that your business is located outside of Nebraska, but your employee has temporarily moved to Nebraska and is working from there:
Should you withhold Nebraska state income and payroll taxes?
No.
In the case that your business is located within Nebraska, but your employee has temporarily moved out of state and is working remotely (from outside of Nebraska):
Should you withhold Nebraska state income and payroll taxes?
It depends on what you were doing before.
The Nebraska Department of Revenue will not require employers to change the state which was previously established in their payroll systems for income tax withholding purposes for employees who are now working remotely, telecommuting or temporarily relocated to a work location within or outside Nebraska due to the COVID-19 pandemic.
Neither the employer nor the employee is required to register a change in work location, as long as the location change happened after the date the emergency was declared, March 13, 2020, and ends on January 1, 2021 (unless the emergency is extended).
Find more information here.
Nevada
No COVID-19 guidance has been issued yet.
New Hampshire
No COVID-19 guidance has been issued yet.
New Jersey
In the case that your business is located outside of New Jersey, but your employee has temporarily moved to New Jersey and is working from there:
Should you withhold New Jersey state income and payroll taxes?
No.
In regular times, New Jersey rules dictate that income is sourced based on where the service or employment is performed. However, during the temporary period of the COVID-19 pandemic, wage income will continue to be sourced as determined by the employer in accordance with the employer’s jurisdiction.
Find more information here.
New Mexico
No COVID-19 guidance has been issued yet.
New York
No COVID-19 guidance has been issued yet.
North Carolina
No COVID-19 guidance has been issued yet.
North Dakota
In the case that your business is located outside of North Dakota, but your employee has temporarily moved to North Dakota and is working from there:
Should you withhold North Dakota state income and payroll taxes?
No.
In North Dakota, if the remote work is attributable to COVID and is intended to be temporary, North Dakota will not assert income tax nexus on that basis alone.
Find more information here.
Ohio
No COVID-19 guidance has been issued yet.
However, Ohio has reciprocity agreements with a number of states. Residents of Ohio who work in the following states will only be subject to Ohio payroll and income taxes. The opposite is also true: residents of these states who work in Ohio will only be subject to income and payroll taxes within the resident state:
- Indiana
- Kentucky
- Michigan
- Pennsylvania
- West Virginia
Oklahoma
No COVID-19 guidance has been issued yet.
Oregon
No COVID-19 guidance has been issued yet. However, even in regular times, if an Oregon resident is working in Arizona, that employee is not subject to Arizona income and payroll taxes.
Pennsylvania
In the case that your business is located outside of Pennsylvania, but your employee has temporarily moved to Pennsylvania and is working from there:
Should you withhold Pennsylvania state income and payroll taxes?
Yes.
If an employee is temporarily from Pennsylvania due to the COVID-19 pandemic, the employer is required to withhold on the compensation.
In the case that your business is located within of Pennsylvania, but your employee has temporarily moved out of state and is working remotely (from outside of Pennsylvania):
Should you withhold Pennsylvania state income and payroll taxes?
Yes.
However, there is an important exception, if the employee is working in a state that has a reciprocity agreement with Pennsylvania, they will not be subject to income or payroll tax withholdings.
States that have reciprocity agreements with Pennsylvania are:
- Indiana
- Maryland
- New Jersey
- Ohio
- Virginia
- West Virginia
Find more information here.
Another important note: Philadelphia has issued its own city-specific guidance:
The Philadelphia Department of Revenue has temporarily waived the legal nexus threshold which—in regular times—considers the presence of employees working temporarily from home within Philadelphia as establishing sufficient nexus for out-of-Philadelphia businesses. This waiver applies if and when an employee works from home solely as a result of the COVID-19 pandemic.
Find more information here.
Rhode Island
In the case that your business is located outside of Rhode Island, but your employee has temporarily moved to Rhode Island and is working from there:
Should you withhold South Carolina state income and payroll taxes?
No.
Under the emergency regulation, Rhode Island will not require employers located outside of Rhode Island to withhold Rhode Island income taxes from the wages of employees who are Rhode Island residents and temporarily working within Rhode Island solely due to the pandemic.
Find more information here.
South Carolina
In the case that your business is located outside of South Carolina, but your employee has temporarily moved to South Carolina and is working from there:
Should you withhold South Carolina state income and payroll taxes?
No.
If you, the employer, is withholding income taxes on behalf of another state, the wages of a South Carolina resident employee—who is temporarily working remotely from South Carolina instead of their typical business location—are not subject to South Carolina withholding.
Find more information here.
South Dakota
No COVID-19 guidance has been issued yet.
Tennessee
No COVID-19 guidance has been issued yet.
Texas
No COVID-19 guidance has been issued yet.
Utah
No COVID-19 guidance has been issued yet.
Vermont
No COVID-19 guidance has been issued yet.
Virginia
No COVID-19 guidance has been issued yet.
However, Virginia has a reciprocity agreement with a number of states. If a resident of Virginia works in one of these states, that employee will only be subject to Virginia payroll and income taxes:
- Arizona
- Kentucky
- Maryland
- Pennsylvania
- West Virginia
The opposite is also true: if a resident of one of these states is working in Virgina, that employee is not responsible for paying Virginia income and payroll taxes.
- D.C.
- Kentucky
- Maryland
- Pennsylvania
- West Virginia
Washington
No COVID-19 guidance has been issued yet.
West Virginia
No COVID-19 guidance has been issued yet.
Wisconsin
In the case that your business is located outside of Wisconsin, but your employee has temporarily moved to Wisconsin and is working from there:
Should you withhold Wisconsin state income and payroll taxes?
No.
In a webinar delivered on April 16, 2020, the Director of the Wisconsin Department of Revenue’s Audit Bureau stated that companies will not have nexus in Wisconsin as a result of having employees working remotely in the state due to COVID-19.
Find more information here.
Wyoming
No COVID-19 guidance has been issued yet.
Keep checking this list for updates on state nexus guidelines throughout the COVID-19 pandemic.
