For the last year, we've been tracking the guidance that states have issued related to how state personal income taxes will be handled during the COVID-19 pandemic, with a specific focus on telecommuting employees. At this point, most states have issued some guidance on this. Connecticut, on the other hand, has stayed silent, until now.
On March 4, 2021, Governor Lamont signed H.B. No. 6516, which provides that any Connecticut resident who paid tax to a state that uses a convenience of the employer rule will be allowed a credit against their Connecticut income tax for the tax paid to the other state on income earned while working remotely from Connecticut. So if a Connecticut resident normally works in New York and has been working remotely in Connecticut, he will be allowed a credit for taxes paid to New York on this income. In addition, Connecticut residents will be allowed a credit for taxes paid to another state that enacted a law or rule requiring a nonresident employee to pay tax to that state on income earned while working remotely from Connecticut due to COVID-19 if, immediately prior to March 11, 2020, the employee worked in the other state. This would allow a credit for income paid to Massachusetts, for example, which issued an emergency regulation requiring tax be paid under this scenario. Connecticut issued a Commissioner’s Bulletin that explained that these credits only apply to the 2020 tax year.
Connecticut also issued a Special Bulletin that provided expanded guidance applicable to nonresidents. This guidance explains that for nonresidents, who were assigned to a work location in Connecticut but were working remotely from a state with a convenience of the employer rule, Connecticut will not impose income tax on this income earned while working remotely during 2020 whether the employee was working remotely due convenience or necessity. This is the opposite of Connecticut’s typical treatment of income in this scenario. Normally, under Connecticut’s reverse convenience rule, it would source all of the income earned while working in a state with a convenience of the employer rule, like New York, to Connecticut. So this is likely going to result in residents in states with convenience rules to have underpaid estimated taxes for 2020!
The Bulletin also explained that if a nonresident who was assigned to an office in Connecticut continues to physically work in the state, that income earned while working in the state would still be subject to tax in Connecticut.
For now, though, this guidance (and the new law) applies only to the 2020 tax year. But Connecticut’s 2018 legislation (addressed in our blog here), where Connecticut agreed to allow for resident tax credits for taxes paid to convenience-rule states, should nonetheless provide relief to a Connecticut taxpayer who continues to work from home for their New York employer, for example, in 2021. Specifically, the “convenience of the employer” provisions in C.G.S. § 12-711 would still allow Connecticut residents a credit against their Connecticut income tax for taxes paid to New York on income that New York taxed under the convenience rule.
