WFH in Different State Due to Covid-19

[lanemcd]

In March I moved back to MA from MD due to Covid-19. I now work from home full-time here in MA.  In July I canceled the lease on my apartment in MD.  My employer still deducts MD state taxes from my pay.  Should I ask them to deduct MA state taxes and stop the deduction of MD taxes?  We have been told that we may not go back to the office until the first quarter of 2021.  Since I am in MA, I was told that I may be able to WFH indefinitely. Thanks.

[TomD8]

"In March I moved back to MA..."

When you started working in MD did you go there temporarily for work purposes while maintaining your main, primary home in MA?   Or did you literally move to MD and make it your new main, primary home?  

[lanemcd]

I moved to MD for a full-time position in August 2019. In the first 7 months of 2019, I collected unemployment and did some part-time consulting in MA. I own a home in MA and my wife is a school teacher in MA.  I filed income tax forms for MD and MA in 2019.

In January 2020 I changed my driver's license and car registration to MD under the assumption that I would be living the majority of the year there.  I planned to return twice a month to MA for long weekends as I did in 2019. I assumed MD would be my official residence for 2020 until March happened. I've been working from home in MA since March 21.  I moved out of my MD apartment in July and put my stuff in a storage unit down there under the assumption that we will move back to the office at some point. 

I have been told that WFH will last through the end of the year, possibly into the Spring of 2021.  There is also the possibility that I might be able to work from home here in MA permanently. 

So is it time I stop paying MD tax and ask my employer to deduct MA taxes?  Thanks.

[TomD8 · Accepted solution]

My interpretation of your situation is that, for state tax purposes for 2020, you are a domiciliary resident of MA and a non-resident of MD.

Since it was apparently never your intent to sever your ties to your home in MA, nor did you take any action to sever those ties (such as selling your home in MA),  MA has remained your state of domicile throughout your time in MD.  You can only have one domicile, although you can have more than one residence.  In order to establish your domicile in MD, you would have had to abandon your domicile in MA.  This document from the State of MD may help explain:

https://www.marylandtaxes.gov/forms/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_R...

Your domiciliary state can tax ALL your income, regardless of where you earned it.  Therefore for 2020 you must file as a full-year resident of MA, reporting all your 2020 income.

The income you earned by physically working in MD is taxable by MD.  Since you will spend fewer than 183 days in MD during 2020, you will file as a non-resident in MD, reporting your income earned in MD.  (If you had maintained a place of abode in MD for more than 6 months and spent 183 days or more in MD, you would have had to file as a resident in MD.)

You will be able to take a credit on your MA return for the taxes you pay to MD on the income that is taxed by both states, so you won't be double-taxed.

Since you only worked in MD for less than 3 months, I would ask your employer to withhold MA taxes until you're able to return to physically working in MD.

[lanemcd]

Thanks Tom!

Lane