Lived in MA, MD and MA taxes withheld

[Marka81]

I am a MA resident, my duty station was in MD.  ( I don't serve in military, but I work for the Department of Defense). I have MD and MA taxes withheld. I was teleworking. That means that I was living and working in MA, but my duty station was in MD. No other connection to MD.  I never lived in MD. I understand why the employer withheld MD taxes since seems MD requires for employers to do so for nonresidents from the states Maryland has no reciprocal agreements with.

My question is, would the income considered to be MD sourced? I know it is 100% taxed by MA since that is my resident state, but what about MD?

This MD tax announcement supposedly provides the answer. But this is confusing.

https://www.marylandtaxes.gov/.../TaxAlert050420...

The announcement seems to explain that MD did not change it's business nexus rules due to COVID 19. Only employee income earned while physically present in MD is MD income.

But, I am attempting to reconcile two sections in the announcement.

"Maryland employer withholding requirements are not affected by the current shift from working on the employer’s premises to teleworking because taxability is determined by the employee’s physical presence. ... Income is deemed Maryland-sourced income when the income is compensation for services performed in Maryland. "

Ok, great, so taxability is determined by physical presence of the employee. But then it says as an example:

"...Unlike the aforementioned states, Delaware has not entered into a reciprocal agreement with the state of Maryland. Compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to withholding."

Maryland nonresident = Delaware resident, "teleworking in Maryland" This is ambiguous. How do you "telework" *in* Maryland if you are a nonresident working from Delaware? Why call this example out at all? If the point is to say any nonresident that is working remotely and physically not in Maryland is not Maryland-sourced income, then this example is not very good.

So is that MD sourced income or not?

[MaryK4]

No, if you did not work in Maryland it is not Maryland sourced income.  The application of the announcement would apply if you were a Maryland resident or worked in Maryland.

[Marka81]

Thank you. So, only if I physically worked in MD, that would be MD sourced income, to my understanding

I should put zero under MD sourced income on MD nonresident return and get a refund of all MD taxes paid.

[MaryK4]

Yes, you have to file the nonresident Maryland return with zero allocated income and you will get the withholding returned. @Marka81 

[gdubbz]

I have a similar situation. I am self-employed and live in FL, working 100% remotely from FL, for a company in MD. I receive a 1099-NEC from that MD company for the work I perform remotely. I do not physically set foot to work in MD since I moved out of that state last year. So am I also exempt from MD taxation, like the original poster here?

What happens to the future 1099-NEC's that I will continue to receive if I am exempt from MD taxation for the remote telework? Since no tax is withheld, I do not need to file any type of tax return with the State of MD nor pay estimated taxes?

My concern is that MD will have a copy of my 1099-NEC filed by the employer, but yet have no tax return from me to match it up with. Would they just simply see that I have a FL residential address on the 1099-NEC and ignore it?

Thank you for any help in advance!

[TomD8]

@gdubbz --

 "I do not physically set foot to work in MD since I moved out of that state last year."

Did you move out of MD in 2023?  If so, for 2023 you are a part-year resident of MD - in which case all your income prior to the move would be taxable by MD.

But if you neither lived in nor physically worked in MD for all of 2023, then for 2023 your work income is not subject to MD income tax.  MD does not tax the out-of-state remote income of non-residents.

[gdubbz]

Hello Tom and thank you sincerely for your response.

Yes, I was a part year resident and for 2023, understand that I have to file a MD resident return as I was a resident for ~183+ days. Income after I moved to FL would be entered as "Non-Maryland Income" on my MD State return, correct?

What appears to be confusing, is that I cannot find anything in writing from the State of MD that discusses and provides guidance on this issue (do you know of any?). The answers seem to be in how the wording is interpreted. For example, Maryland states "Income is deemed Maryland-sourced income when the income is compensation for services performed in Maryland". If I remotely connect to a computer in MD and fix a issue with that computer, is that not "services performed in Maryland" even though I am physically located in FL?

Maryland also states "Compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to withholding". Like the original poster, this is confusing because of the "is teleworking in Maryland" portion. Or am I just understanding it incorrectly?

Any thoughts on what process I should follow for 2024 and thereafter, based on my previous post and how my 1099-NEC will be treated? Will it just be ignored by both MD and myself?

[TomD8]

Q:  "If I remotely connect to a computer in MD and fix a issue with that computer, is that not "services performed in Maryland" even though I am physically located in FL?"

A:  No.  If you are physically in Florida when you perform the service, those services are being rendered IN Florida, not in MD.  Your physical location is the determining factor.

Q: Compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to withholding". Like the original poster, this is confusing because of the "is teleworking in Maryland" portion.

A:  This refers to a non-resident who is teleworking from a location in MD.  For example, a Delaware resident teleworking from a location in Chevy Chase, MD.  Such a person is working IN Maryland, and his remote income would be taxable by MD.

[zstjean25]

Similar scenario as above. Resident of Massachusetts who works for the DoD (Joint Base Andrews) in MD, as a civilian. I travel to the location and am onsite for three days a week. I have MA income taxes withheld. I know I need to file as a non-resident. Do I also need to have MD income tax withheld? Any clarification is greatly appreciated. Thank you 

[gdubbz]

As Tom stated above, my understanding also boils down to this:  Your physical location is the determining factor. So if you are physically working in MD (even though you are a resident of another state) you will owe MD taxes on the income earned there. This has also been my experience in the past with physically working in one state and residing in another. You should be able to get your employer to withold MD taxes or you can also outright pay MD estimated taxes, either one. Otherwise, MD is likely to penalize you if nothing is being paid throughout the year of you working in MD. I don't know how MA handles the taxes you are having to pay to MD. Some states will give a credit back to you for income earned and taxed in another state. I am not familiar with how MA would handle that but hope that I have helped, otherwise. My situation was different because I was not physically located in MD, but earning $ from a MD source via remote work only.

[JotikaT2]

Since you physically work within Maryland for 3 days per week, any income earned while you are within the state is considered Maryland sourced income. Assuming you are not within Maryland for more than 183 days during the year, you would still be considered a nonresident and would file a nonresident return.  If you were within Maryland for 183 days or more, you would be considered a statutory resident of Maryland and would need to file as a resident.

In regards to your income and withholdings, if your earned income meets the threshold requirements based upon your filing status as listed on page 2 of these instructions, you would need to file a Maryland return and have Maryland withholdings on those wages.  You will be entitled to a credit on your Massachusetts return for the taxes paid with your Maryland return for the same income that is also taxed within Massachusetts.  Be sure to complete your nonresident return first to ensure TurboTax computes the out of state credit on your Massachusetts resident return.

Please also see this link for more details on how to report your income when you live and earn income in more than one state.

@zstjean25