Remote nonresident Maryland taxes withheld 2021

[fed1996soft]

Hello,

I worked remotely (due to covid) for a company located in Maryland as an employee through the end of January 2021. I left the organization at the end of January 2021. The Maryland company withheld Maryland state taxes for that one (1) month time period.

For several years prior to 2021 (however, not for 2020) I worked mostly onsite in Maryland (as an employee) and the remainder of the time in New Hampshire.  Maryland state taxes were withheld, and I did not apportion any remote work.  For those prior years, I had filed Maryland 505 and 505NR forms since I was onsite in Maryland for greater than 180 days.

In 2020, I only worked two (2) months onsite in Maryland, and the remaining 10 months were in New Hampshire (due to covid).

OK, my questions (finally).

For 2021, for the one (1) month I worked remotely, will the withheld taxes be refunded to me?  TT does ask which Maryland form I filed the previous year and I selected 505 (as I did in previous years).

For 2020, although filed in mid-2021, I am wondering if I should have been taxed in apportion to the onsite days in Maryland?

Thx

[DMarkM1 · Accepted solution]

Yes for 2021 you will file a non-resident MD return and allocate zero income for 2021 to MD since you did not physically work in MD.  You will be refunded the taxes withheld for the one month in 2021. 

Yes, the same situation would be applicable to 2020.  MD would not tax the income earned working for the MD company but remotely in NH.  You would allocate two months to MD for the two months you physically worked in MD as a non-resident.  

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.

[fed1996soft]

Thanks for your reply.

As I read the link you included (thanks!), 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. "

This announcement aligns with your answer.  However, the last line of the announcement, I am having an interpretation issue where the statement gives an example of a teleworking person in Delaware.

"...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.

[RaifH]

I agree, the announcement is a little bit of a word salad. The whole Delaware example was differentiating a state with no reciprocal agreement to contrast its tax treatment as compared to states with a reciprocal agreement with Maryland. I would read that sentence as "compensation paid to a Maryland nonresident who is teleworking from Maryland is Maryland-sourced income, and therefore, subject to withholding."

In other words, if you are not a Maryland resident or a resident of one of the states that have a reciprocity agreement with Maryland but are working from Maryland due to temporary circumstances, your income is taxable by Maryland. You never worked from Maryland in 2021, so your income is not sourced from Maryland. 

[presumptuous]

Sorry, but what are you talking about. I live in Indiana and work remotely, in Maryland. I just did the turbotax and it tells me I have to pay 4200 f&*$(*)#*&&&45g dollars to Maryland. What the hell. Is turbotax wrong or are you?

I ALSO have to pay 850 in Indiana. DOUBLE taxed. So mad.

[Marka81]

@DMarkM1  I am a full resident in MA, but my duty station was in MD in 2022 so I was teleworking living and working in MA.  The employer withheld MD and MA taxes from my check.  I understand that I need to file MD as non resident, but does that income consider to be MD sourced?

That MD tax notice is confusing and contradicting. It says:

"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. "

So that says that is it not MD sourced income. But then it says this:

"...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."

So what is it?

[HopeS]

It is not clear whether or not you are in the military since typically you do not telework in the military. 

However, if you are in the military, there is a federal law that they should not tax your military income in MD. You only pay taxes to your state of residence which is MA.

If you are not military the income is MD sourced and you would have to pay MD taxes on it and files a non-resident return.

See the instructions below for the military state of residence:

Military state of residence 

Since you are a resident of MA ALL your income is taxable by MA regardless of where you earned it.  So you must file a MA tax return.

Your income from MD is also taxable by MD. So therefore you have to file a tax return in both states. You won't be double-taxed, because MA will give you a credit for the taxes you pay to MD

In the personal info section of TurboTax, enter MA as your State of Residence, and indicate that you had Other State Income from MA.  

In order to get the proper credit you should complete the non-resident MD return before you do your home state MA return so that the credit flows properly.

See additional guidance in the link below:

How do I file a nonresident state return?

@Marka81 

[Marka81]

Thank you. I don't serve in military, but I work for Department of Defense in the legal department.

So you are saying that this is MD sourced income. Do you have any source stating so? Because the MD posted announcement which says this:

"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"

https://www.marylandtaxes.gov/covid/documents/TaxAlert050420-EmployerWithholdingonTeleworkers.pdf

I do not live in MD. The problem is I am getting double taxed per se because MA only gives a partial credit for MD taxes paid. I paid 3k to MD, MA only gives 1,200. However if there is no MD sourced income then I can get full a 3k refund of MD paid taxes. 

@HopeS 

Also, another expert in my post disagrees that this is MD sourced income. 

https://ttlc.intuit.com/community/state-taxes/discussion/re-lived-in-ma-md-and-ma-taxes-withheld/01/...

[Marka81]

@fed1996soft  How did you end up handling this? I am in the similar situation, and MD announcement is so confusing as you said yourself. 

[Marka81]

@RaifH Do you believe that there is MD sourced income in my situation as well? Could you check this post?

https://ttlc.intuit.com/community/state-taxes/discussion/re-lived-in-ma-md-and-ma-taxes-withheld/01/...

[ThomasM125]

It appears that the tax alert that you shared applies mainly to individuals who worked onsite in Maryland but were forced into tele-commuting due to Covid. It could also be interpreted to apply to individuals who could work on site but do not out of convenience as opposed to necessity. So, if the nature of your work is such that it is necessary to do it remotely as opposed to simply doing it that way out of convenience to you or the employer, then the income would not be taxable in Maryland.

An example would be a telemarketing company located in Maryland that hires salesmen from all over the country to do phone sales. It would not be practical for the company to rent a builiding and relocate salesman form around the country to work in Maryland, so the remote work is necessary as opposed to being a convenience. Thus, it is not Maryland sourced income for the salesman who are not locaed in Maryland.

@Marka81 

[Marka81]

I think your example makes sense. I lived and still live in MA. I never lived in MD and did not and do not plan to relocate there. And seems, it would not be practical for my employer to relocate me there either.  So this seems as necessity. 

And, maybe if MD will have issues with issuing a refund of all MD taxes I paid, then I could justify it by their own announcement which states " taxability is determined by the employee’s physical presence" ? 

[PattiF]

Yes, if the state of Maryland were to question the refund of state taxes paid, you could explain the situation using their own announcement. There should not be a problem to refund the state income tax that was withheld for your situation.

If you are still employed by the Department of Defense, contact them about changing the withholding to MA and stop withholding for MD.

@Marka81 

[Marka81]

Thank you @PattiF 

That is my thought as well. Their announcement is a bit confusing but it does say that the taxability is determined by employee physical presence. So to me, that is the answer right there. I hope.