Maryland Administrative Release 6 Explained

Maryland Administrative Release 6 emerged from the state’s Comptroller to address tax questions arising from the mass shift to remote work during the COVID-19 pandemic. This guidance document clarified how state income taxes should be handled for wages earned by individuals who were no longer commuting to their typical workplaces. Its purpose was to establish temporary rules for sourcing employee income, ensuring that widespread teleworking did not create undue tax burdens or confusion for workers and their employers.

Scope of Administrative Release 6

The guidance in Administrative Release 6 was tied to the duration of the COVID-19 state of emergency in Maryland. Its provisions were not permanent changes to the state’s tax code but a temporary measure for the public health crisis. The rules applied only to wages earned during the state of emergency, which ended on July 1, 2021. A 45-day administrative grace period extended this guidance through August 15, 2021, after which the provisions were no longer in effect.

The release targeted two groups of employees whose work arrangements were impacted by the pandemic. The first group consisted of non-residents of Maryland employed by a company in the state but compelled to telework from a location outside of Maryland. The second group included Maryland residents employed by an out-of-state company who, due to pandemic-related office closures, began working from their homes within Maryland.

Core Provisions for Non-Resident Employees

Maryland’s income tax for non-residents is based on physical presence, meaning income is sourced to Maryland only if the employee performs the work in the state. Consequently, non-resident teleworkers who perform their work outside of Maryland are not subject to Maryland income tax on those wages. Administrative Release 6 did not create an exception to this rule but affirmed how Maryland’s existing physical presence standard applied during the COVID-19 emergency.

It clarified that because non-resident employees were required to work from outside Maryland due to the pandemic, their income was not Maryland-sourced. For example, a resident of Virginia working for a firm in Baltimore whose office was closed from March 2020 through June 2021 would not owe Maryland income tax on wages earned during that timeframe.

Tax Implications for Maryland Residents

The release also addressed the tax situation for Maryland residents employed by companies in other states who began teleworking from home. Many of these employees faced the prospect of double taxation. States with “convenience of the employer” rules, such as New York, Pennsylvania, and Delaware, would continue to tax the income of these Maryland residents. This created a scenario where both the employer’s state and Maryland could potentially tax the same wages.

To prevent this, Administrative Release 6 affirmed Maryland’s commitment to providing a credit for taxes paid to other states, a standard feature of tax law. The release confirmed that Maryland residents required to pay income tax to another state on wages earned while teleworking from Maryland could claim a credit on their Maryland tax return. This credit directly reduces their Maryland income tax liability.

For instance, a Maryland resident employed by a company in New York City would have New York state income tax withheld from their paycheck while working from home. When filing their Maryland tax return, this individual could claim a credit for the taxes paid to New York.

Required Documentation and Substantiation

To benefit from the provisions of Administrative Release 6, taxpayers must be prepared to substantiate their position with clear evidence that their telework arrangement was a direct result of the COVID-19 emergency. The Maryland Comptroller’s office retains the right to request documentation to verify claims. Documents to support this position include official communications from the employer, such as a written directive or a formal policy announcement mandating telework.

Proof of the employer’s Maryland office closure, such as public announcements or internal memos, is also valuable. Payroll records that clearly indicate the employee’s work location for specific pay periods can further strengthen the case. Taxpayers should retain these records to defend their tax filing position if questioned.

Applying the Release on Your Tax Return

The process for reflecting the situation on an annual tax return differs for non-residents and residents. A non-resident of Maryland who is excluding wages earned while teleworking outside the state must file Form 505, the Nonresident Income Tax Return. On this form, they must allocate their wages, reporting only the income earned from work physically performed in Maryland. The portion of wages earned while teleworking from their home state would not be included in the Maryland taxable income calculation.

For a Maryland resident, the process involves claiming the credit for taxes paid to another state. This is done using Maryland Form 502CR, “Credit for Income Tax Paid to Other States,” which is filed with the standard Form 502, the Resident Income Tax Return. On Form 502CR, the taxpayer must report the amount of income that was taxed by the other state and the amount of tax paid. The calculated credit from Form 502CR is then carried over to Form 502, where it reduces the final Maryland tax due.