Income in Multiple States

[Sparky]

A large employer is requesting that their employees who travel to dozen of states in a given year, (working a week at a time) will now be responsible for reporting their income in those states. Seems way cumbersome and pointless as in most cases being non-resident will result in no tax. Very costly and time consuming to prepare however. Suggestions? Reference tools? thanks for your time.

[ChEAr$]

Key worfd

here is that employer is "requesting". Employer cannot require of course, and must realize that it does not have to withhold for each such state.

No problem.

[Sparky]

not understanding why it is no problem. if the employee earns $10,000 in ten different states it would be such a hassle to file. Are you saying if the employer does not withhold and or give them separate W-2's the employee should just file their home state return?

[Roberts]

Generally, you are required to report 100% of your income to your state of residency. You then file returns to other states to show you paid them tax and want to get a credit for that tax paid on your resident state return.

If they withhold taxes for many different states, you need to file state tax returns for many different states.


Or are you saying you are the accountant for the business and they are requesting you now withhold taxes for their employees in each state?

[Snaggletooth]

May be no reporting required

Such an employer with extremely transitory personnel in these states must [in general] have a location in those states in order to incur a withholding requirement. Even without a location, if there are large destination sales in such states, there may be a reporting requirement. That issue is between the employer and those various states. It is quite possible this employer has no requirement to report income or withhold for those various states.

Given no income or withholding to be reported from the employer, the burden of such a requirement [if there is any] then falls on the employee. The employees have residency requirements in each state, and they can be different from state to state. Many of these requirements are a "continuous" presence rather than a "sporadic" presence. If the employees stay long enough to meet those residency requirements, then they are required to report their income, even if there is no withholding.

These states also have an income "threshold" before being required to file, and they also vary from state to state. However, in almost all cases, this income is additionally defined as income which is "sourced" in that state. My best guess is this "source" definition will not require employees to report if their paycheck is coming from another state, but this is often unclear as well.

The state which domiciles the employer probably has the best claim on "source" income, and a return will be required for that state. And if the employee lives in a different state than the employer, that employee will need to report his state of residency as well.

Bear in mind, FL, TX, TN, NV, SD, WY, WA, and NH have no income tax anyway. An employer in those states has no reporting requirement to its "home" state, but a worker driving in from another state has full reporting responsibility to his domicile state even if no employer reporting or withholding. A resident of the listed states who commutes to another taxable state has to file a non-resident return to the state where income is sourced, even though there is no tax in his home. What's worse, such an employee gets no credit for taxes paid to another state.

[Sparky]

No I am not the accountant for the employer. Trying to help a taxpayer. I will look further into some of your suggestions. Thanks so much for your input.

[Matt Sova]

Multiple states

Many neighboring states have reciprocal laws. For instance, an Employer in MI has a MI resident for an employee. The MI resident works at sites in OH, IN and IL during the year. The employer only withholds MI taxes.

[FEDUKE404]

Fwiw

Many moons ago I prepared a tax return for....a member of the circus that was in town.

His employer had dutifully broken down the income he had "earned" while in each state. (And his "home" address was shown as....the train!!)

Very few (if any?) of the states had withheld their own tax, and the dollar amounts were below the filing minimums for a single person. So with the employee's consent, we prepared his federal return as well as his "home state" return, both returns showing ALL income.

While this approach will not work for a professional athlete who makes mega bucks for an hour of work....and who would out of necessity likely have to file a return for each state....the concept is one that might be of use in the situation cited.

One other issue: Be wary of circumstances that might classify your client as an "itinerant" - if that is the case, then you have opened a new container of wrigglers!

FE

[Roland Slugg]

Here is a pretty good source of additional information regarding multiple state withholding and filing requirements:

http://www.planetpayroll.com/multi-statetaxation.htm