On March 4, 2021, Governor Lamont signed H.B. 6516, An Act Mitigating Adverse Tax Consequences from Employees Working Remotely During COVID-19, and Concerning the Removal of Liens on the Property of Public Assistance Beneficiaries and a Three-Tired Grants in Lieu of Taxes Program.
This new law allows Connecticut residents to take credits for income taxes paid to another state that has either a convenience of the employer rule (like New York) or a COVID-19 pandemic-like convenience rule (like Massachusetts). With respect to the convenience of the employer rule, the new law provides a credit even if the employee was obligated by necessity to work remotely from Connecticut. With respect to the pandemic-like convenience rule, the new law requires that, in order to get the benefit of the credit, the employee needs to show that he or she performed work in the normal state immediately prior to March 11, 2020.
Of significant importance: the new law applies only to the 2020 tax year. The new legislation has no impact on the treatment of these issues in the tax year 2021 or beyond. As a result, Connecticut residents need to be mindful of the continued tax implications of working from home beyond the 2020 tax year.
In addition, the new law provides some relief to employers by providing that the activities of an employee who worked remotely from Connecticut during the 2020 tax year solely due to the pandemic shall not be considered by the Department of Revenue Services (the “Department”) when determining whether such employer has nexus with Connecticut for purposes of all taxes administered by the Department, including withholding taxes, sales taxes, corporation business, and pass-through entity taxes for the 2020 tax year. As with the tax credit relief, the nexus relief provisions are only applicable for the 2020 year, so employers need to be mindful as to whether the activities of their employees in Connecticut in 2021 may create nexus to Connecticut in 2021.
On March 5, 2021, the Commissioner of the Department of Revenue Services issued a Bulletin that can be found here that further explains the provisions of the new legislation. The Bulletin indicates that the DRS has established the following special hotline to receive and answer questions on the new legislation: 860-297-5677.