In March 2020 as the COVID-19 pandemic closed offices to in-person work, the South Carolina Department of Revenue (SCDOR) announced temporary relief from state tax withholdings for employees who typically work out of state, but were required to telecommute from their South Carolina residences. The temporary relief measure was repeatedly extended until a recent draft revenue ruling from SCDOR proposed an end to the pandemic measure.
In the draft ruling, SCDOR proposes that the relief measure will end on June 30. This means that out-of-state employers must begin withholding South Carolina payroll taxes for employees who work from their South Carolina residences. If the employee works partially in South Carolina and partially in another state, the employer must withhold South Carolina taxes for the portion of time spent working in South Carolina, assuming that the other state requires withholding for its portion of the employee’s work. Otherwise, the employer must withhold South Carolina taxes from 100% of the employee’s earnings.
This ruling will impact Charlotte area employers with employees who telecommute from their homes in South Carolina. As a result of the COVID-19 pandemic, many North Carolina employers have agreed to allow employees to permanently work partially or full time from home. These decisions may have significant impacts on tax and other laws applicable in the states where the employees reside.
The revenue ruling does not discuss the applicability of other South Carolina labor laws to telecommuting employees. It also does not discuss whether telecommuting employees create a nexus that could subject the employer to South Carolina corporate taxes. Each state interprets these requirements differently, and employers with employees in multiple states should consult their legal and tax advisors for guidance. Comments on the draft SCDOR proposal are due by April 19.