Today's workforce is becoming increasingly mobile. Working remotely can often mean working from other states, as well. While mobility can benefit employers, income tax reporting is a burden.
On March 7, 2017, the Mobile Workforce State Income Tax Simplification Act (H.R. 1393, S. 540) was introduced in Congress. The bill is sponsored by Rep. Mike Bishop (R-MI). It was voted favorably out of the House Judiciary Committee on March 22 and it is the latest version of the bill that is intended to protect employers and their employees who travel for work for short periods of time. These employers are currently subject to a myriad of nonresident state income tax reporting requirements.
In a recent editorial on the Bloomberg BNA website, Joe Huddleston, an Executive Director EY's Indirect Tax Practice, noted that,
"As the mobile workforce grows and travels around the country for work, more employers and employees are caught in a patchwork of state tax laws regarding income tax reporting and withholding. When does a nonresident worker owe income tax in a jurisdiction, and when is an employer required to withhold tax based on a nonresident worker's presence in a jurisdiction? These questions sound straightforward, but the complexities and administrative burdens mount when they are addressed on a 50-state basis for thousands of businesses and their employees.”
There are currently 43 states along with the District of Columbia that levy a personal income tax on wages and partnership income.
Providing Tax Filing Compliance Revisions for an Increasingly Mobile Workforce
The bill would, among other things, establish the following:
“This bill prohibits the wages or other remuneration earned by an employee who performs employment duties in more than one state from being subject to income tax in any state other than: (1) the state of the employee's residence, and (2) the state within which the employee is present and performing employment duties for more than 30 days during the calendar year.
The bill exempts employers from state income tax withholding and information reporting requirements for employees not subject to income tax in the state under this bill. For the purposes of determining penalties related to an employer's state income tax withholding or reporting requirements, an employer may rely on an employee's annual determination of the time expected to be spent working in a state in the absence of fraud or collusion by such employee.”
Currently, the proposed bill is supported by a wide coalition of both Republicans and Democrats. There is some opposition from the Multistate Tax Commission and Federation of Tax Administrators, which has its own proposed solutions, along with some unions.
The Pressing Need to Relieve the Employer Burden
During the House Judiciary Committee meeting, Chairman Bob Goodlatte (R-Va.) stated that the multitude of state nonresident tax laws only serves to "distract hardworking businesses with burdensome requirements." He added that,
"When a small-business owner is faced with additional compliance requirements for employees working temporarily in different states, those costs can add up, hurting the growth of the business as a whole and penalizing success."
The American Payroll Association (APA) in support of the bill, stated,
On their website, the APA offers two reasons for support of the legislation:
"This bill is essential to both employers and employees, small and large, public and private, union and nonunion, nonprofit and for-profit, and all others located in any state. The act provides for a uniform, fair, and easily administered law and helps to ensure that the correct amount of tax is withheld and paid to the states without the undue burden that the current system places on employees and employers."
“Reducing burden through improved compliance capabilities: Because of the extreme complexity of state tax laws and regulations, compliance for many employers is practically impossible. A lack of adequate software systems, personnel, time, money, or other resources are some of the impediments that prevent compliance with these complex laws and regulations.
Treating employees fairly: Currently, if an employee performs temporary services in another state without a threshold, but with a higher tax rate than that of the state of residence, that employee suffers an irretrievable increase in tax expense. “
The APA notes that the House Judiciary Committee supported these reasons, quoting Representative Hank Johnson (D-Ga.) as saying that the bill will "help workers and small businesses across the country."
In addition to the previously noted provisions, the proposed bill includes the following:
- Certain types of employees will be excluded by this bill. These include professional athletes, professional entertainers, and some public figures. These will remain subject to state withholding laws.
- An employee's earnings would be subject to tax in the states within which the employee is actually present and working for more than 30 days during the calendar year. This is known as the safe harbor provision.
- Qualified production employees working on a film or television production would not be eligible for the 30-day safe harbor against nonresident income tax withholding if their work was covered by a state's film incentive program.
Tax Filing and Payroll Management
Reporting for payroll tax and payroll reporting compliance can expand the potential of risk for employers, require new workplace postings, or mandate updates to existing workplace policies. We recommend that all employers consult with experienced employment counsel to ensure compliance.
Accurate and timely management and compliance practices are required for every business and every payroll professional. But there are options.
Accuchex, a reputable payroll management services provider, can not only relieve you of the burden of your ongoing payroll process demands, but can potentially prove to be a more cost-effective solution, as well.
Click this link o get your free download of our Payroll Outsourcing Guide. Or click the button below to learn what you need to know about labor law in California. For more information, feel free to call Accuchex Payroll Management Services at 877-422-2824.