In light of the workplace changes caused by the COVID-19 crisis, the Nebraska Department of Revenue announced a number of new Nebraska tax and incentive policies and statements, which are intended to deal with the tax and incentive implications of these changes. These include the implications from significant numbers of employees working remotely.
We’ll review the policies and statements that we believe will be most impactful for Nebraska companies.
Income Tax Withholding and Liability
Tax Withholding For Employees Working Remotely From Another State. Perhaps the most significant situation for companies whose employees are now working remotely involves employees who no longer work from Nebraska. This may be from employees who live in Iowa, or employees who have temporarily relocated to another state.
In its Frequently Asked Questions guidance, the Department confirmed that it will not require employers to change the state which was previously established in their payroll systems for income tax withholding purposes for employees who are now working from another location, within or outside Nebraska, due to the COVID-19 pandemic. This change in work location is not required beginning with the date the emergency was declared, March 13, 2020, and ending on January 1, 2021 (unless the emergency is extended).
Nebraska Source Income For Employees Working Remotely. In a recent General Information Letter, the Department has also stated that it considers employees working remotely in another state to have Nebraska source income, for the period beginning March 13, 2020 (the declaration of emergency) until January 1, 2021 or 30 days after the end of the declared emergency, whichever is later.
Nebraska Advantage Incentive Implications
The Department has issued guidance (GIL 29-20-2) for companies with current Nebraska incentive projects, which guidance applies during a period that the Department has defined as the “COVID-19 Period.” The COVID-19 Period runs from March 13, 2020 (the declaration of emergency) until January 1, 2021 or 30 days after the end of the declared emergency, whichever is later.
Employees Working From Home. During the COVID-19 Period, the Department will not track the locations of employees who worked at a Nebraska Advantage project prior to the period. These employees may work from home or an alternative location and still be deemed to be “employed at the project.” In addition, for employees who start work during the COVID-19 Period, and who work from home or an alternative location, they will be treated as “employed at the project” from their date of hire.
So, companies with Nebraska Advantage projects should track employee hours as though those employees are performing work at the project, regardless of the remote location where those employees are working.
Nebraska Employees On Standby. If an employer pays an employee, but does not require the employee to report to work, those hours paid will count toward the calculation of the number of new employees at a Nebraska Advantage project during the COVID-19 Period.
Employees With Reduced Wages. If a company is forced to reduce an employee’s rate of pay, the hours of that employee may continue to be included in the company’s Nebraska Advantage calculation if that employee is paid at least the minimum weekly wage (assuming all other requirements for employees under the incentive program are also met).
Furloughed Employees Given Benefits. Furloughed workers who are paid benefits, but not wages, cannot be included in the calculation of the number of new employees for incentive purposes because those employees do not earn the required weekly wage.
Subsidized Wages Through Federal Credits. Many companies have been able to receive federal tax credits or benefits (such as PPP loans) that effectively cause the government to pay some or all of the wages of that company’s employees. The Department has confirmed that such wages still count for Nebraska incentive purposes, even though they are subsidized by the federal government.
Effect Of Reduced Hours For Salaried Employees. For projects applied for prior to September 2013, salaried employees are deemed to work the number of hours regularly worked by full-time hourly employees. The Department has confirmed that it will not reduce the deemed number of hours of salaried employees even if the work schedule for hourly employees was reduced due to the COVID-19 pandemic.
Force Majeure. Nebraska’s incentive programs excuse nonperformance with the minimum investment and employment thresholds in the event of an “act of God or national emergency.” These provisions are commonly known as “Force Majeure” provisions. In its GIL 29-20-1, the Department has stated its position that the Force Majeure provisions in the Nebraska incentive acts do not apply unless a company can provide evidence that its failure was the direct result of forces beyond its control including, but not limited to, a government order to cease or reduce operations, or a directed health measure that prevented the business from continuing its usual operations. The Department’s position is that the Force Majeure provisions in the Nebraska incentive acts do not excuse performance on the basis of financial hardship or where the failure to maintain levels was the result of a business decision within the control of the company.
For guidance on how these rules may specifically impact the business of you, or your client, please contact a member of the Tax Group.