HR Hotline: How Do We Withhold Taxes for a Nonresident Who Works from Home?
Q: We are a Connecticut employer with one employee who works primarily from her Massachusetts home. She comes into the office in Connecticut one day per week. How do we withhold taxes?
A: Connecticut has a 15-day allowance rule for workers. If an employee comes into the state and works for up to 15 days per year, the state will not assert income tax.
However, if the employee travels to Connecticut for more than 15 days for work, Connecticut will assert income tax, including for the first 15 days.
For an employee who works a five-day weekly schedule, and works in Connecticut one of those five days—or 20% of their schedule—it is up to the employer to calculate 20% of the person’s income and withhold taxes only on that 20%.
If an employer has an employee who works 100% remotely out of the state, Connecticut will not assert income tax.
An employer should continue to withhold tax based on where they work in most states.
‘Convenience of the Employer’
Arkansas, New York, Pennsylvania, Delaware, and Nebraska are exceptions. Those states adopted what is commonly referred to as the “convenience of the employer rule.”
The “convenience of the employer rule” is used by some states for sourcing income earned by nonresidents who work for in-state employers at a location outside the state (e.g., from a home office).
Under this rule, a nonresident employee’s wage income is sourced to the employee’s physical location if they work remotely by the employer’s necessity; alternatively, the income is sourced to the employer’s physical location if the employee is working remotely only for their convenience.
Since 2019, Connecticut has applied the rule only if a nonresident employee’s state of residency also applies a similar rule.
In other words, Connecticut applies the rule to nonresident employees of a Connecticut employer who work from a remote location and reside in one of the five states listed above.
Consequently, wages earned by these nonresidents are allocated to Connecticut unless they are working remotely due to the necessity of the employer rather than the employee’s convenience.
HR problems or issues? Email or call CBIA’s Diane Mokriski at the HR Hotline (860.244.1900) | @HRHotline.
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