Former MA employee now living in CT and telecommuting

Hello all,

I've been reading up on the state tax procedures for non-resident telecommuters, and figured I'd post our situation here and get some guidance.

My girlfriend was a Massachusetts resident working for a Massachusetts company. In September 2007 we moved to Connecticut and became CT residents. She still works for the MA company, working 100% from her CT home office except for the rare MA office visit when she is in town to see her parents or whatever.

Her paychecks have been updated to reflect the new CT address, but MA state tax (and no CT state tax) is still being withheld as it was when she was a resident.

Now, we are trying to decide what the withholding should be to avoid (or minimize) a nightmare come tax time. The way I see it, she is earning her money while physically in CT, which means CT has a claim on earnings. What about MA? Since it is a MA company, does MA have any claim to earnings?

Does anyone with CT/MA tax clients/experience know the best way to setup withholding and file returns? The company she works for is very small and I'm pretty sure they do not have a CT tax ID. I'm assuming they cannot withhold taxes for CT. (They do their payroll through ADP

- perhaps that would help? Not sure how that works...) Should she set her MA withholding to zero and pay CT estimated tax? Leave it set to MA withholding and file a return to get a credit?

I assume she will have to file in both states (definitely this year since she was a part-year MA resident, but next year as well, when she is 100% CT res?) but not sure what to do at this point. I plan to have a professional help us file next year, but want to do anything we can now to both understand the law and make it as easy as possible come April.

Thanks in advance for any help!

-J

Yes, she'll be subject to CT tax on her earnings after the move there, and MA can tax only her earnings (after the move) when she is in the MA office. MA has a regulation that says a nonresident does not have MA source income from a business, including employment, if the nonresident's presence is MA is "casual, isolated and inconsequential" ( Mass. Regs. Code 830 CMR § 62.5A.1(3)(h). So MA might not even tax her earnings for the little bit of time she spent in her employer's MA office after the move, depending on the facts.

She'll have a part-year resident return to file in MA, and a part-year resident return in CT. She'll be under withheld in CT and overwithheld in MA.

Going forward, she should have the employer withhold CT tax rather than MA. However, as you suggest, the employer may not be registered in CT and may not want to do so. It really should, because it has an employee working there, but presumably your GF wants to maintain good relations with the company, so she may want to just make estimated tax payments to CT to cover her liability in 2008. (She could still make estimated tax payments for 2007, too, at least one or two; that would stop the running of the underpayment penalty calculation.)

In any event, shut down the MA withholding. She may have a little tax liability to MA as a nonresident but it doesn't sound as though it will be much.

Katie in San Diego

The foregoing is intended for educational purposes only and does not constitute legal or professional advice. Nothing contained herein is intended to be used, or can be used, to avoid penalties that may be imposed under federal or any state law.

Former MA employee now living in CT and telecommuting - state tax q