The End of the COVID-19 Emergency Response in Nebraska: Income Tax Withholding for Telecommuters

In response to the COVID-19 pandemic and the sudden wave of remote employees, the Nebraska Department of Revenue (NDOR) published emergency FAQs in March of 2020 that waived an employer’s obligation to update the working location of their employees for State income tax withholding purposes.  The NDOR guidance applied to employers with workers telecommuting from residences outside of Nebraska.  As a result of these FAQs, these employers were not required to change their state withholding practices.

But on July 27, 2021, the NDOR updated its FAQs to end this COVID-19-related protection for employers.  Beginning July 30, 2021, employers must update their payroll systems as required before the pandemic.  Specifically, for payroll and Nebraska State income tax withholding purposes, employers must now change the state in which their employees are working (if telecommuting from outside of Nebraska).

Notwithstanding the removal of this withholding relief by the NDOR, employers may still need to withhold Nebraska State income taxes for telecommuting employees.  Under Nebraska law, the wages of a telecommuting employee may be considered Nebraska-source income, subject to individual income tax, and the corresponding employer withholding obligations.  Nebraska is one of just a few states that aggressively taxes the income of telecommuting employees in this way.  As a result, an employer could be faced with an obligation to withhold State income taxes in multiple states: the state in which the telecommuting employee resides and Nebraska.  Employers should accordingly carefully consider their State income tax withholding obligations when employing remote employees.

Hannah Fischer Frey
Morgan L. Kreiser
Tanner Whited