Businesses with employees in Pennsylvania should be prepared to adapt to a post-COVID-19 world now that temporary guidance regarding remote work has expired and pre-pandemic rules regarding employment tax withholding and nexus have been applied.
Effective July 1, 2021, the Pennsylvania Department of Revenue (“DOR”) announced that prior guidance, which effectively disregarded remote work by employees for Pennsylvania tax purposes, is no longer applicable. As a result, if employees are working remotely from their home, their home office must be treated as their work location for purposes of sourcing compensation. Likewise, nonresident employees required to work remotely full-time in another state should treat their compensation as a non-Pennsylvania source income.
The DOR also announced that pre-COVID-19 corporate net income tax nexus rules are applicable as of July 1, i.e., the presence of employees in Pennsylvania working from home will be sufficient ― by itself ― to give rise to nexus for corporate net income tax and sales and use tax without regard to any economic thresholds. Therefore, businesses with employees working remotely in Pennsylvania could have tax obligations as the result of such employees.
Our Tax colleagues explain these changes and their implications at length here. Please note that a subscription may be required for access.