New Hampshire residents who worked remotely for Massachusetts companies during the COVID-19 pandemic may have to pay Massachusetts income tax, according to a state regulation.
New Hampshire considered this regulation, which applies to about 80,000 NH residents, unconstitutional. The state brought it to the Supreme Court, who rejected the complaint without hearing it.
So what does this mean for New Hampshire residents, and what will happen next? Here’s a closer look:
When did the Massachusetts work from home tax regulation begin?
In April of 2020, the state of Massachusetts put a regulation in place during the pandemic that ordered residents who didn’t live in MA, but worked for MA-based companies, to pay income tax during the time they worked from home. This rule was set to expire 90 days after the state of emergency of employees’ home states were lifted. (In New Hampshire, Gov. Chris Sununu declared the state of emergency over on June 11.)
In October, New Hampshire sued the state of Massachusetts, stating that this regulation was unconstitutional. Leaders said they understood that people who worked in Massachusetts would need to pay income taxes, but it was unfair to levy those same taxes if they never left the state of New Hampshire.
They took the case to the Supreme Court and requested that money be returned to New Hampshire residents who were forced to pay it. The Supreme Court rejected the complaint.
Why did the justices reject the work from home tax complaint?
The Supreme Court rejected New Hampshire’s complaint because they believed the complaint should have started at a lower court and worked its way up to the Supreme Court. This was in agreement with advice the court had received from the Biden administration, which recommended that the court should not hear the challenge directly.
The state of Massachusetts agreed with the court, saying any challenges to it should start at a lower court by individuals who felt they were harmed by this tax.
What happens now?
New Hampshire had support from other states, including New Jersey, Connecticut, Hawaii and Iowa, who all filed a “joint amicus brief.”
Now that the Supreme Court has decided not to hear the complaint, other members of congress are taking action.
U.S. Rep. Chris Pappas, Rep. Ann M. Kuster and Rep. Jahana Hayes are co-sponsoring a bill called The Multi-State Worker Tax Fairness Act of 2020, which intends to “limit the authority of a state to impose its income tax on the compensation of a nonresident individual to the period in which the nonresident individual is physically present in the state.”
This decision could be the start of a tricky precedent, because as more employees work from home, other states could enforce similar taxes. Time will tell, but for now, this is something to pay attention to if you work virtually for a different state than the one you reside in.
And remember, if you are an out-of-state resident working for a Massachusetts-based company, be prepared to start withholding MA taxes if you haven’t started already. That will prevent you from being caught off guard if you owe money next tax season.
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