On Monday, October 19, the State of New Hampshire filed a bill of complaint in the Supreme Court of the United States asserting that its southern neighbor, Massachusetts, is violating its state sovereignty. The suit attacks Massachusetts’s emergency regulations governing the taxation of income during the COVID-19 state of emergency. Massachusetts enacted a rule pursuant to which income earned by a nonresident of Massachusetts who worked in Massachusetts prior to the pandemic but who is working from home outside of the state remains Massachusetts-source income subject to Massachusetts income tax. Accordingly, employers would be required to continue to withhold Massachusetts income tax on wages paid to those individuals even though the individuals are no longer working in Massachusetts. Although the Massachusetts guidance is among the most sophisticated and detailed withholding guidance issued by the states during the pandemic, it is not alone in taking this approach. Rhode Island issued regulations substantially similar to Massachusetts, and the Pennsylvania Department of Revenue has issued similar guidance in the form of FAQs posted on its website. Other states have hinted at taking a similar approach, but the guidance is often vague and left open to interpretation.
Continue Reading New Hampshire Brings COVID-19 Tax Dispute to Supreme Court; Case Highlights Challenges Facing Employers and Employees
The IRS recently released Notice 2020-46, providing favorable tax relief for “leave-based donation programs” designed to aid victims of COVID-19 pandemic. Under these programs, employees may elect to forgo vacation, sick, or personal leave in exchange for payments that the employer makes to charitable organizations described under section 170(c). Under this notice, payments employees elect to forgo do not constitute income or wages of the employees for federal income and employment tax purposes if the employer makes the payments, before January 1, 2021, to charitable organizations for the relief of victims of the pandemic. The IRS will not assert that an opportunity to make this election results in employees’ constructive receipt of the payments. Accordingly, an employer would not need to include the payments in Box 1, 3 (if applicable), or 5 of the Forms W-2 for employees electing to forgo their vacation, sick, or personal leave.
Continue Reading IRS Provides Guidance on Leave Donation Programs in Response to COVID-19 Pandemic