Strategies For Dealing With a Mobile Workforce: State Income Taxation And Withholding Requirements
Originally published in Michigan Tax Lawyer:
On February 5, 2015, Senator John Thune (South Dakota) introduced Senate Bill 386, which is a reintroduction of prior versions of the Mobile Workforce State Income Tax Simplification Act. The reintroduction of this Mobile Workforce bill serves as a reminder of the need for uniformity and simplification in the area of state individual income taxation – and related state income tax withholding – in the context of a mobile workforce (i.e., a workforce comprised of employees that work in states other than their individual resident states). Each time mobile workforce legislation is introduced it has the same general stated purpose: [t]o limit the authority of states to tax certain income of employees for employment duties performed in other states.
The principal element in each mobile workforce bill is a uniform rule that 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:
- the state of the employee's residence, and
- the state within which the employee is present and performing employment duties for more than 30 days during the calendar year.
The mobile workforce bills also exempt employers from withholding of tax and information reporting requirements for employees that are not subject to state income tax under the relevant Act; and allow an employer, for purposes of determining penalties related to employer withholding or reporting requirements, to rely on an employee's annual determination of the time such employee will spend working in a state (in the absence of fraud or collusion by the employee).
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