Working across the border can be taxing.
Granite Staters telecommuting from home during the pandemic who thought they were going to catch a break on their Massachusetts income tax are in for a unwelcome surprise.
Those days working from home will be taxed as if they were spent at a desk in the Bay State, a change from previous years.
“I think that’s the most ridiculous thing I’ve ever heard,” said Jim Adams, former chairman of the Granite State Taxpayers, an anti-tax group.
Massachusetts issued an emergency order effective March 10 requiring people who normally worked in Massachusetts and who were working from home for a pandemic-related reason to continue to be taxed on their income.
Massachusetts has extended that at least until October, a spokesman for the Massachusetts Executive Office for Administration and Finance said Friday.
In the past, Massachusetts credited taxpayers for days spent working out of state.
“Massachusetts is probably concerned with losing revenue, but Massachusetts residents have not been spending as much at New Hampshire restaurants and hotels,” said Concord attorney Christopher Sullivan. “Will Massachusetts send New Hampshire a check for the revenue decline that New Hampshire has experienced in meals and rooms tax?”
The Massachusetts Department of Revenue will hold a public hearing on the issue remotely Aug. 27. Officials also are considering a non-emergency regulation that would extend the practice through Dec. 31, or 90 days after a state of emergency in Massachusetts is lifted, whichever is earlier.
The new Mass. math
Nearly 100,000 Granite Staters commuted to Massachusetts for work a few years back, according to a February report from the New Hampshire Department of Employment Security.
More than 10,000 commuted to Vermont and more than 8,000 to Maine. New Hampshire ranked third-highest in the country for the percentage of workers commuting out of state in 2017.
People working at home for three or four months because of the pandemic might have received a sizable tax break for the year.
Instead, that time “will continue to be treated as Massachusetts source income subject to tax and withholding in Massachusetts,” according to a Department of Revenue spokeswoman.
She wouldn’t say why the change was made. Massachusetts has a 5% income tax.
Worse in Vermont
Here’s another scenario to consider.
A New Hampshire resident who normally works in Massachusetts but worked remotely in a Vermont condo will be taxed by both Massachusetts and Vermont for that same amount of work time in Vermont, said Sullivan, president of the Rath, Young and Pignatelli law firm.
“It is a double whammy for the New Hampshire resident who will owe tax to both states with no credit mechanism,” Sullivan said.
In past years, Massachusetts would credit that time in Vermont, Sullivan said.
Douglas Farnham, deputy commissioner of taxes in Vermont, said that Vermont is treating income tax for non-residents the same during the pandemic as it has in the past.
“No legislation has been passed in Vermont which would allow us to change that treatment,” Farnham said in an email. “Income tax for non-residents only applies to income earned while in Vermont.”
Taxing people’s nerves
Attorneys at the McLane Middleton law firm in Manchester have received about a dozen inquiries on the issue.
The Massachusetts change in policy means “no immediate benefit to New Hampshire residents who have started telecommuting for Massachusetts employers,” said tax attorneys Beth Fowler and Catherine Hines.
“The regulation seems to be intended to ensure that the COVID-19 emergency does not affect the Massachusetts taxation of workers whose place of work has changed solely because of the emergency, and to allow businesses sufficient time to prepare for the cessation of the emergency regulation,” the attorneys said in an email.
Normally, when filing their tax returns, Massachusetts workers would get credit for the portion of time they worked out of state, Sullivan said. Employees also could ask their employer to modify their paycheck withholding, he said.
Matt Saunders, a partner in Saunders & Silverstein, a law firm focusing on intellectual property matters in Amesbury, Mass., normally works at his office, but since March has been working from home in Hampton.
He wasn’t planning on a windfall from Massachusetts because he didn’t know that normally he would be entitled to a break on his income tax.
But for people counting on it, “then that’s a problem,” Saunders said.
“I understand the motivation,” Saunders said. “It’s a unique circumstance and I would assume the state is concerned about the loss of tax revenue.”