There is no denying COVID-19 has changed the corporate landscape when it comes to where employees perform work. Before COVID-19, most office employees worked at a central location and performed services in the state in which the employer resided. However, COVID-19 forced most employees to work from home. Often, home for employees may have been in a different state than the employer. This change in service delivery location created issues related to income tax nexus. Quite a few states made some temporary provisions to address these issues. That was back in 2020. It is now 2022, and while COVID-19 still exists, the states are ready to move on from temporary policy.

Physical Presence and COVID-19

Employee location may impact employer income tax filing requirements. Numerous states have a physical presence standard when it comes to sourcing payroll for income tax purposes. This means employees located in neighboring states that used to commute to the office could likely create a new nexus and additional tax compliance burden for the employer. Many states recognized that when COVID-19 arrived, employees would be required to work from home and that some of those employees lived in other states which would likely trigger nexus with the employer’s resident state.

To address this unprecedented complexity, some states issued temporary relief. The majority of these policies stated that if an employee was telecommuting for purposes of COVID-19, no nexus was created, and thus the employer may continue to source this payroll to its (not the employee’s) home state. Income tax withholding worked much the same way. Employers were permitted to continue to withhold income tax of its home state for nonresident employees provided the home state had no reciprocity with its neighboring state.

Fast forward to the middle of 2022, many employees remain at home and, while COVID-19 is still present and accounted for, many states have ended temporary relief. As an example, Virginia and North Carolina do not have the benefit of a reciprocal agreement between those states and therefore may have specific tax and employment filing requirements for both the employer and the employee for telecommuters between them, especially in light of expiring temporary relief provisions. Telecommuting employees and their employers should be aware of the relationship of their resident states to one another, and understand that nonreciprocal states may trigger telecommuting rules and affect payroll withholding and other filing requirements.

Virginia does, however, have many telecommuters that do benefit from the reciprocal agreements between the Commonwealth and the neighboring states. The reciprocal states to Virginia are Maryland, the District of Columbia, West Virginia, Pennsylvania, and Kentucky. The end of temporary relief does not affect those telecommuters.

The End of COVID-19 Temporary Tax Policies

A survey of all 50 states by Bloomberg Tax with regard to employees and tax nexus found that nearly every state indicated that employees working remotely in their state would likely create nexus for income tax purposes. Over half of states (33 to be exact) went so far as to say one employee performing back-office functions would create nexus. The survey also found that 36 states agree that a minimal number of telecommuting employees who conduct non-solicitation activities is enough to create nexus. Bloomberg does not define “minimal”.

Why is this important? Since temporary nexus relief brought on by COVID-19 has ended in most states, many businesses could now be on the hook for additional state compliance. It is possible a single employee, depending on the employee’s function, in another state could be enough to create nexus thus requiring a tax return filing. This means instead of filing tax returns in one state, businesses may have an additional compliance burden and need to file tax returns in multiple states. Keep in mind if an employer has employees in another state and files employee-related income tax withholding returns in that state, the state may begin enforcement action with a letter claiming the employer should have also been filing an income tax return.

Additional Insight – Employer

One interesting income tax item from an employer’s perspective is that there are state rules that seem, in a way, to contradict themselves. While most states agree that physical presence of employees creates nexus, many of those same states are moving toward market-based revenue sourcing and single-sales factor apportionment. This means that although having an employee in a certain state may create nexus, that same state may also apportion income using a single-sales factor. This would ignore payroll as a factor of income apportionment entirely rendering the physical presence rule of employees a moot point.

Additional Insight – Employee

The end of temporary COVID-19 relief may not matter to a nonresident employee who lives in a reciprocal state. However, if a nonresident employee’s state is not reciprocal, additional burden will be placed on the employee as well. Instead of withholding just the employee’s home state, the employee will need to consider that the employer may need to withhold income tax for the employer’s home state as well. This requirement would create the need for the nonresident employee to file as a resident in their home state and non-resident return in the employer’s resident state.


COVID-19 may still technically exist, but the states are moving on, at least from an income tax perspective. The complexities around state tax compliance continue to create challenges. Employers should take a long look at their employee location situation to determine whether they need to seek help regarding the potential additional burden. If you have questions or need a nexus study completed, please contact us at 703.385.8888 or

Written by Alex Scott, CPA:

Alex Tuvin

Alex Scott is a manager with Thompson Greenspon and has been with the firm since 2016.  Prior to joining the firm, he worked for Deloitte’s National Federal Tax Service line in Chicago, Illinois, as well as other small to mid-sized firms.  Alex provides tax services for government contractors, professional services firms and closely-held business and their owners. His experience includes tax compliance, planning and accounting assistance for S and C corporations, partnerships, sole proprietors and individuals.

Alex graduated cum laude from Western Michigan University. He holds both a Bachelors of Business Administration degree with a concentration in Accounting and a Bachelors of Business Administration degree with a concentration in Finance.

He is a board member of the Dulles Regional Chamber of Commerce and served as chair of the Dulles Regional Young Professionals Committee for two years beginning in 2018.  Alex is a member of the American Institute of Certified Public Accountants and the Virginia Society of Certified Public Accountants.

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