Massachusetts Income Tax for Non-Resident working Remotely

[Smiles and Joy]

Hello!  I accepted a new position as a financial consultant for a company that is headquartered in Massachusetts.  I live in Washington State and was hired to mainly help clients on the West Coast.  I have never been to MA and no plans to be there at all.  I was not told by the employer I would have to pay MA income taxes, but in reading the employee handbook, sounds like they will withhold.  And it seems the DOR site says I will have to pay state income tax since the company is located in MA, but all my past experience and what I find on Intuit is that I don't have to.  I did send a request to MA DOR to clarify, but hoping someone can respond before I get the answer as I am to start Monday.  If I had known this was the case, I would have negotiated a higher salary.  In WA, we don't have an income tax, instead we pay really high sales taxes (over 10%), higher property taxes and excessive gas taxes.  I can't avoid that since I live here so in essence I would be double taxed.  

Looking for some advice or resources to help me not pay the MA income tax.  

Thank you!  

[AmyC]

You will be paying tax. MA taxes MA sourced income. In the MA Non-resident Tax Instructions, page 3, are the filing requirements. You must file Massachusetts Form 1-NR/PY, Nonresident/Part-Year Resident Income Tax Return if you were not a resident of Massachusetts for any part of the year and the lesser of either:

1. Your Massachusetts source income was more than $8,000; or

2. Your Massachusetts source income was more than your personal exemption amount multiplied by the ratio of your Massachusetts income to your total income.

[Smiles and Joy]

Thank you Amy for your response!  I read that information on the website, but they still don't specifically call out if you are a non-resident AND don't actually work in the state.   I did get a response first thing this morning from the MA DOR saying I do NOT have to pay state income taxes.  Below is their brief response.  Kudos to them for being so quick to respond!  I don't usually have such a quick turnaround on DOR questions.  And it cracks me up that they say I don't have to pay taxes, but they started the letter out "Dear Taxpayer".  I guess technically we all are taxpayers, just where was the question!  🙂 

Thank you!

Massachusetts Department of Revenue

Thursday, March 03, 2022 07:26 AM

Dear Taxpayer, Thank you for your recent inquiry.  If you do not live or physically work in MA, you are not subject to MA tax and your employer should not be withholding MA tax.
Thank you for visiting our website, The Massachusetts Department of Revenue

[Lucylu1688]

omg, that solved my big headache. I started with a MA firm this past November, but live in Seattle area.  I was struggling with the same thing as we're paying 10.2% tax here already!!  I work remotely because the company couldn't find similar talents locally, and I was supposed to be exempt because my hire was for the convenience of the employer, not me. 

[seafox69]

The response you received from the Massachusetts Department of Revenue contradicts their longstanding position.  I reside (and primarily work from) New Hampshire, which does not collect personal income tax.  Though I work from home in New Hampshire 90 per cent of the time, all of my compensation is considered 'Massachusetts source income' simply because my office location assignment is Boston.

The state's position contractics reality, but this is the way that it has always been.

[Hal_Al]

Massachusetts put in place temporary pandemic rules from 10 March 2020 to 13 September 2021 saying nonresident employees who worked in Massachusetts before 10 March 2020 are still subject to Massachusetts tax until 13 September 2021.

https://solarifinancial.com/what-the-massachusetts-work-from-home-tax-means-for-nh-residents/

https://www.eagletribune.com/news/nh-moves-to-shield-remote-workers-from-out-of-state-taxation/artic...

[seafox69]

Right.  Massachusetts' accountants said that income earned by people not living or working in the state was taxable, but that does not make it so.  You do not choose the state that you pay income taxes to, this is something that is determined by the reality of your living and working arrangements (physical presence).

Historically, Massachusetts has been aggressive in its pursuit of tax revenue over which its entitlement to is questionable.

Example: http://archive.boston.com/news/local/massachusetts/articles/2009/02/03/state_chases_sales_taxes_in_n...

[NCperson]

@seafox69 - 

Per the MA handbook in the link above, MA sourced income is defined as 

All wages, salaries, tips, bonuses, fees and other compensation which relate to activities carried on in Massachusetts, regardless of where or
when the compensation is paid

if I live and work in WA as required by my MA based employer, there is no "activity carried on in MA"!  so no MA tax.  If I live and work in WA for my convenience as my employer otherwise requires me to be in MA ( I tele-commute!), I can see why MA taxes this as the activity should be occuring in MA!   That is consistent with the Dept of Revenue response the OP above received. 

Are you working in NH as required by your firm or are you working in NH for your convenience as your firm otherwise requires you to physcially be in MA each day?  I can see that it would make a difference. 

While I appreciate your reality and perspective, this issue of whether someone is working in a state for their convenience or as required by their employer has bearing on who the employee may owe tax to.  It has become a complex subjust due to technology that enables tele--commuting

Just my two cents

[seafox69]

Defining Massachusetts source income as 'all wages, salaries, tips, bonuses, fees and other compensation which relate to activities carried on in Massachusetts, regardless of where or when the compensation is paid' makes sense.  If 'activities' are not carried out in Massachusetts because the employee is doing them in the state he/she lives and works, the income is not taxable by Massachusetts.

The issue is when this definition changes arbitrarily by the state.

I am not required to work at home in NH, I elect to.  I am assuming you also choose to work from home, as the commute to Boston would be unfeasible.  Your employer is not requiring you to work from home, you chose to do so when you took the job, right?  How would we identify whether the employer or employee specified the arrangement, and why would it matter for tax purposes? 

One thing I would confirm with your employer is the reporting of wages to the state.  If the company is based in Massachusetts, It is possible that your wages will be reported to the state (as everyone else's are) and they will want to know why income tax has not been withheld/paid.  

[NCperson]

@seafox69 - 

<<I am not required to work at home in NH, I elect to>>

I truly believe this is why you are taxed by MA - you are working in NH for your convenience and are otherwise required by your employer to be in MA each working day

<<How would we identify whether the employer or employee specified the arrangement>>

this is up to the Payroll and HR department to control. I used to work for a big company (> 100,000 employees) and 'work location' was always the link to which state's was used for withholding and reported taxable income  

<<why would it matter for tax purposes? >>

because high tax states need to protect their income tax stream in a tele-commuting world and differentiate between who is working in a low income tax state (e.g. NH) because their employer required it or because it was convenient for the employee.  Hard to argue in court for the former; easier to argue in court for the latter.

What would occur if you asked your employer to change the relationship?, meaning the employer agreed you are assigned to a NH location and expected to work from there (just create the code in the computer - the physical location already exists: your home)

and why would it matter for tax purposes? 

[seafox69]

Well, my income was never 'Massachusetts sourced'.  I work for a large Canadian company with offices in almost all US states.  Office location assignment is what dictates what taxes are withheld, but there is a way to manually adjust on the back-end to change the withholdings based on residence, which I have done. 

Massachusetts would prefer to withhold tax from 100 per cent of my income, but as my presence in the state is inconsistent and not predictable, I chose to post-pay income taxes based on what is actually owed.  Because of the way we bill our time in the professional services industry, the (physical) work location is recorded as well, so I have accurate records to this effect.

Income taxes are levied from an objective standpoint, in most cases this is established by physical presence in a jurisdiction.  The reasons why an employee is working in a particular place versus another is irrelevant.  The taxes are owed because the labour was performed there.

[TomD8]

Massachusetts does not have a "convenience of the employer" rule for taxation of non-resident telecommuters.  See Example (5)(a)(1.2) in this excerpt from Massachusetts state law:

https://www.mass.gov/regulations/830-CMR-625a1-non-resident-income-tax

Non-residents of MA are taxed only on MA-source income.  Work income is MA-sourced only if the work is physically carried our from a location within MA.

The Covid exception to this is no longer in effect.

[ChrisM514]

This did change.  You can fill out a form with your mass taxes and it will ask you how many days you worked in mass versus how many days you did and it pro-rates your taxes for you.  Last year was the first year i did it and i received all the taxes back for the days i worked in NH.  I am a NH resident that works in MA and teleworks from home.  50/50 split.  I had my employer give me a document that shows how many days i was in NH versus MA.  hope this helps.

here is the form:

https://www.mass.gov/doc/2023-form-1-nrpy-instructions/download

[Itsadogslife]

That is confusing. However residents of NH are different than other states as NH and MA have these weird contracts being bordering states. 

[TomD8]

@Itsadogslife --

There is no "weird contract" between NH and MA.

Massachusetts taxes non-residents only on Massachusetts-source income.  Work income is "sourced" where the work is actually (physically) performed.   This principle applies to residents of all other states, not just to residents of New Hampshire.

To put it another way, a non-resident of Massachusetts who performs no services within Massachusetts has no income tax obligation to Massachusetts on the income from that work.