The impact of COVID-19 and the emergency Stay-at-Home orders has caused many employees to work from home since mid-March. Prior to the order, in many instances the location where an employee performed their duties was the business location of the employer.
Currently, service income is apportioned to a city using a two-factor formula where the payroll factor and income factor are summed and divided by two to arrive at an apportionment percentage that is applied against the business’s total service income. The payroll factor is computed by dividing compensation paid in the city during the tax period by total compensation paid everywhere during the tax period. Compensation is considered paid in a city:
- If the employee is primarily assigned within the city; or
- If the employee is not primarily assigned a business for the tax period, then to where the employee performs 50% or more of his or her service for the tax period; or
- If the employee is not primarily assigned to any place of business and does not perform 50% or more of his or her service in any location, then to where the employee resides.
In light of recent changes where employees perform the duties, cities have received questions regarding how taxpayers should determine their payroll factor percentage for the second quarter of 2020.
To assist taxpayers on how to report payroll under current conditions, Seattle’s License and Tax Administration office provides the following guidance to taxpayers:
- Utilize the prior year’s payroll factor percentage to calculate the current year’s quarterly payroll factor percentage and true up the payroll factor at the end of the year, when the complete current calendar year’s information is available.
- If the taxpayer prefers to use more current data and believes their work-from-home arrangements during the pandemic will last less than six months of the year, they may use the Q1 2020 payroll factor percentage.
- Regardless of how the taxpayer determines their payroll factor for the quarter, they must review the payroll factor and make the appropriate adjustments at the end of the year when information is available for the complete current calendar year.
View the full document here. The document may be locally edited to include city name, contact information, and letterhead for your respective city.