The South Carolina Department of Revenue (DOR) has announced that effective June 30, 2022, it will end the temporary relief regarding a business’s establishment of nexus solely because an employee is temporarily working in a different work location due to COVID-19.
In a South Carolina DOR Information Letter No. 20-24 (dated 08/26/2020), the DOR provided temporary relief regarding a business's establishment of nexus because an employee was temporarily working in a different work location due to COVID-19. The DOR also provided guidance with respect to employer withholding requirements for these employees. Specifically, during the COVID-19 relief period, a South Carolina business's withholding requirements were not affected by the shift of employees working on the employer's premises in South Carolina to teleworking from outside of South Carolina. Accordingly, the wages of nonresident employees temporarily working remotely in another state instead of their South Carolina business location were still subject to South Carolina withholding.
Additionally, an out-of-state business with employees working from home in South Carolina was not subject to South Carolina's withholding requirement solely due to the shift of employees working on the employer's premises outside of South Carolina to teleworking from South Carolina. Accordingly, the wages of a South Carolina resident employee temporarily working remotely from South Carolina instead of their normal out-of-state business location were not subject to South Carolina withholding if the employer was withholding income taxes on behalf of the other state. The DOR did not use changes solely in an employee's temporary work location due to the remote work requirements arising from, or during, the COVID-19 relief period as a basis for establishing nexus or altering apportionment of income.
Effective June 30, 2022, the standard rule regarding South Carolina employer withholding as outlined below will apply:
Generally, South Carolina's withholding laws do not apply to wages of South Carolina residents working outside of South Carolina during some or all of the payroll period if:
(1) the wages are subject to the withholding laws of the state in which they are earned; and
(2) the employer is withholding income taxes on behalf of the other state.
If this provision applies, the employer is not required to withhold South Carolina income tax on the wages. The wages of nonresident employees working exclusively outside of South Carolina are not subject to South Carolina withholding, but nonresident employees working partially in South Carolina and partially outside of South Carolina are subject to South Carolina withholding only to the extent the wages are for services rendered in South Carolina.
Effective June 30, 2022, South Carolina must follow the employee wage withholding rules as outlined in SC Ruling #22-3.
Please contact your dedicated service professional with any questions.