PA Department of Revenue Remote Work Guidance

Updated May 3, 2024: Pennsylvania previously issued corporate income & sales tax guidance for companies that have employees who are working remotely. This is a summary of the rules which are currently in effect per the PA Department of Revenue’s Remote Work Guidance.

The guidance states that an out of state corporation which has a Pennsylvania resident working at home will have corporate tax nexus unless the activity is protected by P.L. 86-272 (i.e. solicitation of sales of tangible property shipped from a location outside the state). A corporation is considered to have nexus in Pennsylvania for corporate net income tax purposes when it has one or more employees conducting business activities on its behalf in Pennsylvania.

The remote work guidance also provides that a business has nexus with Pennsylvania for sales tax purposes if it maintains a “place of business” in PA. That includes, in part, engaging in any activity as a business within this Commonwealth by any person, either directly or through a subsidiary, representative or an agent. A company which has a Pennsylvania resident working at home may have sales tax nexus based solely on the activities of that employee.

WM Wisdom:
This will directly impact non-Pennsylvania businesses that have employees working from home in Pennsylvania. These companies may have a filing responsibility in Pennsylvania for corporate income and sales tax. 

The remote work guidance goes on to provide that a Pennsylvania resident who is required to telework full-time from home in PA rather than the employer’s location outside of the state should treat their compensation as PA source income. According to the guidance, PA residents will not be able to claim a resident credit for tax paid to another state on this compensation.

An employer who is located outside of Pennsylvania and whose only connection to Pennsylvania is an employee who teleworks full-time from home in Pennsylvania is not required, but may, withhold on the employee’s compensation. A non-resident employee who is required to telework full-time from home in another state should treat their compensation as non-Pennsylvania source income even if their employer is located in Pennsylvania. In those situations, the employer is not required to withhold on the employee’s compensation.

WM Wisdom:
Employers should revisit their remote work policies. If the company does not have a policy, one should be created.  Is telework required of an employee?  Is this in the employee’s job description? If not, it should be. If telework is optional at the employer’s discretion, then these rules may not apply.

What about reciprocal agreements?

Pennsylvania has signed reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia under which one state will not tax employee compensation, subject to employer withholding of the other state. The taxpayer must provide the employer with the appropriate form to notify them of their nonresident status. For example, a Pennsylvania resident working in New Jersey will give the New Jersey employer a Form NJ-165, Employee’s Certificate of Non-Residency in New Jersey, which certifies the employee is a resident of Pennsylvania and that Pennsylvania’s income tax should be withheld rather than New Jersey’s income tax.

What if the employer does not withhold their resident tax?

In this case, an employee would have to file a return in their home state and pay any tax due and file a nonresident return in the state where taxes were withheld and request a refund.

WM Wisdom:
The employer and employee remote work rules are complicated. Each company has a unique set of facts that should be evaluated for compliance with the guidance.

Our tax team is available to discuss your corporate income and sales tax situation at any time. As always, should you have questions on this or other matters affecting you or your business, please call 215.675.8364 or email us to speak with a CPA today.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Pennsylvania Department of Revenue: PA Telework Guidance