The state of Massachusetts introduced a temporary rule that allows companies to continue withholding income taxes from employees outside of the state who work remotely due to the coronavirus (COVID-19).
Massachusetts tried to simplify its corporate accounting policies, which affected all employees outside of the state, including Granite Staters. New Hampshire residents who previously worked personally in Massachusetts will continue to withhold their taxes from their employers.
Earlier this month, the Commonwealth Office of Administration and Finance released a revised estimate of tax revenues for Fiscal Year 21, which has fallen to $ 27.592 billion. This represents an 11% decrease from the consensus revenue estimate of $ 31.159 billion in January 2020.
Traditionally, income is taxed based on where the employee works. Due to COVID-19, many employees have had to telework. States like Massachusetts had to get creative with collecting taxes from government employees.
Due to an emergency order issued March 10, employees who work from home for a Massachusetts company are subject to 5% income tax regardless of where they work. They are only taxed for the days they previously worked in Massachusetts.
Under normal circumstances, only income earned in Massachusetts would be taxed. For example, if a New Hampshire resident worked 50 days with 25 in Massachusetts and 25 in New Hampshire, only half of their income would be taxed.
According to the Commonwealth Office of Administration and Finance communications director Patrick Marvin, thousands of teleworking workers will continue to be taxed only for the days they previously worked in person in Massachusetts. This rule only serves as a continuation of the precedent previously set for non-state workers.
Still, many Granite Staters are concerned about the legality of the Order and the precedent it might set for the future.
The legality of the order remains in question. New Hampshire Governor Chris Sununu recently tweeted that the state of New Hampshire would bring a case to the Supreme Court on the matter. Members of both parties in the New Hampshire House of Representatives have expressed dissatisfaction with the order and questioned its legality.
Rep. Timothy Horrigan (D-Durham) was disappointed with the order and concerned about the impact it would have on his constituents.
“I definitely want her [my constituents] have more money. I couldn’t get on board [with the initial outrage] than the tone was accusatory. A lot of New Hampshire Republicans like to say taxes are theft, which it isn’t, ”Horrigan said.
Even so, Horrigan believes Massachusetts isn’t entirely responsible for the situation.
“Massachusetts will do what is right for Massachusetts. You have been hard hit by the pandemic. The whole budget has a huge hole like ours, ”said Horrigan.
Horrigan believes there is no clear solution where both sides can compromise without a broad income tax.
“I don’t think we’re going to pass a broad income tax. I don’t think either party will accept a broad income tax, ”said Horrigan.
Despite the litigation between the states, Horrigan says that around 492 people from Durham and Madbury are commuting to Massachusetts to work in some capacity.
Matt Fisher, now based in Madbury, is a staff member at Emerson College in Boston. He teleworked due to COVID-19 and bought a house in Madbury.
While the lack of income tax wasn’t a factor in his move to New Hampshire, he thought it was a benefit.
“It wasn’t the reason we moved to NH. Of course I was frustrated. A few thousand a year, it wasn’t enough to be pushed around. But the lawsuit made me optimistic, ”said Fisher.
Despite the current rule, Fisher remains optimistic that it won’t go beyond 2020 like the current law does.
“It’s kind of annoying, but it won’t change our attitude. What would be frustrating is when they’re going to change it again, ”said Fisher.
With the way New Hampshire levies its taxes, Fisher feels disproportionately affected by taxes in both states.
“With no income or sales tax in New Hampshire, you make up for it with the high property tax. I’m losing that advantage, ”said Fisher.
Another New Hampshire resident, Eric Turcotte, expressed frustration with the rule change in The New Hampshire. Turcotte currently works for Salesforce, a company based in Burlington, Massachusetts.
During a normal tax season, Turcotte pays only a fraction of its taxable income to Massachusetts.
“When I paid my taxes, I only paid half or two-thirds of it instead of $ 10,000. With this rule I can’t deduct that. It costs me $ 5,000 out of pocket, ”said Turcotte.
Because of the financial burden of the new tax rule, Turcott’s company has “relocated” him to another state that does not have such a tax rule.
“I’m no longer based in Burlington, but based in San Francisco as a remote worker in New Hampshire,” said Turcotte.
Although his business can change wherever he is, with the new influx of remote workers, businesses have started to get creative. As businesses move away from renting office space, many have begun to spread differences in the cost of living based on where a remote worker is located. Turcotte is one such employee who is affected.
“The cost of living is different. Since Burlington is Boston Metro, they have higher pay. If I work full-time in New Hampshire, I get a 10% cut in wages, ”said Turcotte.
Remote working has become a new reality for many employees. Many are forced to choose between higher taxes or wage cuts, depending on their location. According to Governor Chris Sununu, more than 80,000 employees came to Massachusetts to work every day, or 15% of all commuters.
It remains to be seen whether the case will be heard by the Supreme Court. Only about 100 to 150 cases are dealt with by the Supreme Court each year.
Even so, the rule change only serves to continue the tax revenue as usual in Massachusetts. Many Granite Staters believe that now that they work from home in New Hampshire, they are no longer subject to Massachusetts income tax.
The rule is expected to expire at the end of 2020, with no further expansion planned.
Charlie Baker’s and Chris Sununu’s offices, as well as the New Hampshire Department of Labor and the Massachusetts Department of Treasury, did not respond to a comment.
Photo courtesy Jimmy Emerson, DMV / Flick Creative Commons