Labor & Employment News Alert

Congress Considering Unifying State Tax Safe Harbor For Employers and Employees

March 3, 2015

The Mobile Workforce State Income Tax Simplification Act of 2015, (S.B. 386) was introduced in the United States Senate on February 5th, 2015. The Bill seeks to address tax compliance issues for employers whose employees have brief tours of duty in multiple states. It also seeks to reduce compliance issues for the employees who are required to report income via tax returns in various states that he or she has worked.

 

Generally, employers are obligated to withhold state income taxes and payroll taxes of employees and remit those funds to state taxing authorities. The taxes requiring withholding and the thresholds for when withholding is required differ from state to state, causing compliance difficulties for multistate businesses. The majority of states require withholding immediately upon services being performed in the state, while the minority of states impose a time or dollar threshold for employer withholding requirements. These differences burden employers by requiring them to understand where employees are performing services and monitor those services in order to adhere to each specific states' withholding requirements.

 

The Bill sets a 30-day safe harbor from state personal income tax and withholding obligations for employers and their employees. Employees traveling to a nonresident state for fewer than thirty days would incur no personal income tax liability in the nonresident state, and the employer would have no withholding obligation. Moreover, the employee would not be required to file any tax return in the state. It is important to note that the Bill allows employers to rely on an employee’s annual determination of the time spent in a particular state to determine withholding obligations. Finally, it is interesting that the Bill explicitly does not extend this safe harbor to professional athletes, professional entertainers, or public figures because the Bill negatively defines these individuals as not “employees” for the purposes of the Bill.

This article was authored by Ryan Pulver, Jackson Kelly PLLC.