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City Income Taxes and Telecommuting FAQ
City Income Taxes and Telecommuting FAQ
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What is Telecommuting?Telecommuting, or working remotely, is the concept of working at home through a computer or telephone.
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Are Wages earned by a resident of Detroit, who is working from home (telecommuting) for a company in another city, taxable by Detroit?
Yes. If you are a Detroit resident, all of your income is subject to Detroit tax, no matter where it is earned.
See line-by-line Instructions for Form 5118, 2021 City of Detroit Resident Income Tax Return.
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Are wages earned by a nonresident of Detroit, who is working from home (telecommuting) at a location outside of the city, taxable by Detroit?
No. The nonresident is not subject to tax on wages earned while telecommuting from a location outside the city. However, any wages earned by a nonresident while working within the City of Detroit are taxable.
See line-by-line Instructions for Form 5119, 2021 City of Detroit Nonresident Income Tax Return.
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I am a nonresident of the City of Detroit and earned income while both in the city of Detroit, and outside the City of Detroit. How do I file?
All wages earned while working in the City of Detroit are taxable. Nonresidents should file using the City of Detroit Nonresident Income Tax Return (Form 5119). Include the City of Detroit Withholding Tax Schedule (Form 5121), and complete part 3.
See line-by-line Instructions for Form 5119, 2021 City of Detroit Nonresident Income Tax Return.
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What documentation is required for a nonresident to allocate telecommuting wages to nontaxable income?The employee should keep a work log of the days worked outside the city. Employers should provide employees with a letter, on company letter head, stating the dates that employees were directed to work from home. The employees are not required to submit the work log and employer letter with a city income tax return, but taxpayers should still retain the documents and may be required to furnish the documents upon request by a city tax administrator.
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How did the Michigan Department of Treasury conclude that wages earned a nonresident of Detroit, who is working from home (telecommuting) at a location outside of the city, are not taxable by Detroit?
There is no provision in the City Income Tax Act (CITA) that permits cities to tax wages earned outside of the city. CITA defines “compensation” as:
“….salary, pay or emolument given as compensation or wages for work done or services rendered, in cash or in kind, and includes but is not limited to the following: salaries, wages, bonuses, commissions, fees, tips, incentive payments, severance pay, vacation pay and sick pay.” MCL 141.604(2)
Nonresidents are taxed on:
“…salary, bonus, wage, commission, and other compensation for services rendered as an employee for work done or services performed in the city…” MCL 141.613(a)
Therefore, nonresidents of a city that imposes a city income tax under the City Income Tax Act are not subject to city income tax on compensation earned while telecommuting from a location that is physically outside of the city.
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How will the stimulus payment affect my City of Detroit individual income tax return?The stimulus payment is not considered income and therefore not included in your federal Adjusted Gross Income (AGI) which is used to determine your taxable income for your City Resident Income Tax Return (Form 5118). It should also not be included when calculating taxable income on the City of Detroit Nonresident Income Tax Return (Form 5119) or the City of Detroit Part-Year Resident Income Tax Return (Form 5120).