State Tax Implications for a Mobile Workforce

The SALT Shaker

One of the difficult compliance issues facing businesses today is what are the state tax implications when employees travel to other states for work. Under what circumstances should an employer withhold multiple states’ taxes from an employee’s wages when the employee is working in multiple states?  As with most tax issues the answer is it depends.

Here are some items to consider when a client asks how to handle an employee working out-of-state.

  1. There is not a uniform answer to this question.  Some states have guidance on the topic, some states say one day triggers the withholding and some states do not provide any guidance.
  2. Some factors to consider are:
  • -Which state is the employee working in – New York is very aggressive in this area,
  • -How long is the employee working in the other state, and
  • -Is there a reciprocal agreement between the two states such as between Maryland and Pennsylvania (Maryland can’t tax the wages of Pennsylvania residents earned in Maryland).
  1. For clients this is a business risk decision weighing the added administrative burden of establishing new state tax filings versus the problems of getting caught by the states.  The states are becoming more sophisticated with computer data bases that can detect this type of circumstance. The risk of detection is increasing and should be considered.
  2. There is a bill in Congress on this subject that would standardize the rules. “Mobile Workforce State Income Tax Simplification Act of 2011 – H.R. 1864”  In this proposed legislation Congress sets the standard of more than 30 days in a 12 month period to trigger the other state’s right to tax the wages and force withholding. This is NOT final legislation at this time.
  3. As to unemployment taxes – I talked with Dennis Morton, Director of Contributions for MD Unemployment, about the Mobile Workforce issue.  He told me the employee’s wages should not be reported to other states for “temporary” work projects.  What is temporary?  Again no clear answer. He did say he thought 30 days in the other state would be temporary and the wages should continue to be reported in MD. 

Please contact Andy Bareham if you have any questions regarding client employees that work in multiple states.

The SALT Shaker is prepared by Andy Bareham

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