Maryland issues updated guidance on employer withholding requirements for teleworking due to COVID-19 (2024)

May 7, 2020
2020-1228

Maryland issues updated guidance on employer withholding requirements for teleworking due to COVID-19

On May 4, 2020, the Office of the Comptroller of Maryland issued updated guidance to address withholding questions it received concerning temporary telework within the state due to COVID-19. (For the previous guidance, see EY Tax Alert 2020-1067.)

Resident income tax withholding

The guidance states that Maryland employer withholding requirements are not affected by the current shift from working on the employer's premises to teleworking because taxability is determined by the employee's physical presence within the state.

Generally, Maryland state income tax and state income tax withholding applies to employees domiciled in Maryland, statutory residents of Maryland (except that active duty military and the spouses of active duty military are not deemed statutory residents when their presence in Maryland is solely the result of military orders) and nonresident employees receiving Maryland-sourced income.

Nonresident income tax withholding

Income is deemed Maryland-sourced when it is compensation for services performed within Maryland, and as such, Maryland nonresident income tax and withholding apply. An exception applies to wages, salaries, tips and commission for work performed in Maryland by residents of Virginia, Washington, D.C., and West Virginia because Maryland has a reciprocal agreement with these states.

Note also that Maryland income tax withholding is not required if the employee's annual compensation is less than $5,000. (May 2019 Maryland Employer Withholding Guide (p. 5).)

Delaware has not entered into a reciprocal agreement with Maryland; therefore, compensation paid to a Maryland nonresident who is teleworking in Maryland is Maryland-sourced income, and therefore, subject to Maryland state income tax and withholding.

The assertion of nexus

The Office does not intend to change or alter the facts and circ*mstances it has consistently used to determine nexus or income sourcing. As has always been the case, the Office reviews and considers the specific facts and circ*mstances of each taxpayer in making a fair determination. In doing so going forward, the Office understands that many businesses have been required, or otherwise found it necessary during the COVID-19 health emergency, to temporarily alter their workplace model and deployment of their employees. Consequently, the Office will recognize the temporary nature of a business's interim workplace model and employee deployment in light of and during the current health emergency and will not use these temporary measures to impose business nexus, alter the sourcing of business income, or impose additional withholding requirements on the employer.

Frequently asked questions

The guidance includes answers to the following frequently asked questions (FAQs).

FAQ 1: My business is based in Virginia with offices in Maryland and Washington D.C. Both of my employees are Maryland residents. Generally, one works in the Maryland office and the other in the Washington D.C. office. Both are presently teleworking in Maryland. Do I have a Maryland withholding requirement?

Yes. Your employees are Maryland residents and are subject to tax on all income earned.

FAQ 2: My business is based in Maryland with offices in Virginia and Washington D.C. Both of my employees are Maryland residents. One works in the Maryland office and the other in the Washington D.C. office. Do I have a Maryland withholding requirement?

Yes. Your employees are Maryland residents and are subject to tax on all income earned.

FAQ 3: My business is based in Virginia with offices in Maryland and Washington D.C. Both of my employees are Virginia residents. Generally, one works in the Maryland office and the other in the Washington D.C. office. Both are teleworking in Virginia. Do I have a Maryland withholding requirement?

No. Your employees are not Maryland residents and they are not performing services in the state. Even if they were providing services in Maryland, they would be exempt from withholding due to Maryland's reciprocal agreement with Virginia.

FAQ 4: My business is based in Delaware with an office in Maryland. My employee resides in Delaware but generally works in the Maryland office. He is currently teleworking in Delaware. Do I have a Maryland withholding requirement?

Yes. Delaware has not entered into a reciprocal agreement with Maryland. You have a withholding requirement for the wages paid as compensation for services rendered in the Maryland office because it is Maryland-sourced income, but no withholding requirement for the wages paid as compensation during the time your employee is teleworking.

FAQ 5: My business is based in Delaware with an office in Maryland. My employee resides in Delaware but generally works in the Maryland office. He is currently teleworking in Maryland. Do I have a Maryland withholding requirement?

Yes. Delaware has not entered into a reciprocal agreement with Maryland. You have a withholding requirement for the wages paid as compensation for services rendered in the Maryland office and those paid for services rendered while teleworking in Maryland.

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Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services - Employment Tax Advisory Services
Kenneth Hausser (kenneth.hausser@ey.com)
Debera Salam (debera.salam@ey.com)
Kristie Lowery (kristie.lowery@ey.com)
Peter Berard (peter.berard@ey.com)

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Maryland issues updated guidance on employer withholding requirements for teleworking due to COVID-19 (2024)
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