multi-state taxation and reportingpayroll update:! multi-state taxation and reporting presented by...
TRANSCRIPT
Payroll Update:!Multi-State Taxation and Reporting
Presented by Larry Holmes
State taxation and reporting requirementsas they apply to state
income tax withholding
We will talk about:1. Tax myths!2. Multi-state withholding
responsibilities!3. Reciprocity!4. Location!5. Nexus!6. Filing tax returns in
multiple states!7. Telecommuting
»FalseEmployees believe they only have to pay income taxes in the state where
they live.
MYTHS
»FalseEmployees assume the state tax rules are the
same as federal tax rules.
MYTHS
»FalseEmployees have to pay taxes to the state where their employer is located.
MYTHS
»FalseEmployees, and some employers, think employees don’t have to file a return in
a reciprocal state.
MYTHS
»FalseEmployees think if they live or work in a state that does not
have an income tax, then they don’t owe state income taxes.
MYTHS
Multi-State Withholding Responsibilities
1. In what state is your organization located?
2. In what state or states do your employees live?
3. In what state or states do your employees work?
4. Does a reciprocal agreement exist?
5. Does a business nexus in those states exist?Q
uest
ions
:
Withhold tax for the state in which services are performed.The default rule:
States That Do Not Have Income Tax Withholding1. Alaska!2. Florida!3. Nevada!
4. New Hampshire!
5. South Dakota!6. Tennessee!
7. Texas!8.Washington!9.Wyoming
The first determination that must be made is where the employee lives.
Withholding Rule No. 1
21
Alabama
Arizona
California
Illinois
New Jersey
ReciprocityWithholding Rule No. 2
Resident and nonresident taxation
Withholding Rule No. 3
Reciprocal Agreement
A reciprocal agreement allows you to withhold only for the state where the employee is a resident.
Illinois » Iowa!» Kentucky!
»Michigan!»Wisconsin
Indiana» Kentucky!» Michigan!» Ohio!
» Pennsylvania!» Wisconsin
Iowa » Illinois
Kentucky» Illinois!» Indiana!» Michigan!» Ohio!
» Virginia!» West Virginia!» Wisconsin
Maryland» District of
Columbia!» Pennsylvania!
» Virginia!» West Virginia
Michigan» Illinois!» Indiana!» Kentucky!
» Minnesota!» Ohio!» Wisconsin
Minnesota » Michigan! » North Dakota
Montana » North Dakota
New Jersey » Pennsylvania
North Dakota » Minnesota! » Montana
Ohio » Indiana!» Kentucky!» Michigan!
» Pennsylvania!» West Virginia
Pennsylvania» Indiana!» Maryland!» New Jersey!
» Ohio!» Virginia!» West Virginia
Virginia» District of
Columbia!» Kentucky!
» Maryland!» Pennsylvania!» West Virginia
West Virginia» Kentucky!» Maryland!» Ohio!
» Pennsylvania!» Virginia
Wisconsin » Illinois!» Indiana!
» Kentucky!»Michigan
District of Columbia » Everybody
Resident and nonresident taxation
Withholding Rule No. 3
An employee is a resident of 1 state
but performs services in another state,
and there is not a reciprocal agreement.
Determine the state of residency.
Withholding Rule No. 1
»Arizona!»California!»Georgia!
»New Mexico!»Oklahoma!»Utah
Exceptions:
The employer is always subject to the laws of any state in which it has an employee performing services.
The amount of wages earned in each state must be separately considered under withholding rule No. 3.
NEXUSConnection
If the employer does not have nexus with an employee’s state of residence, but there is a reciprocal agreement, the employer must honor the reciprocal agreement.
If the employer does not have nexus in a state for which one of its employees has a personal income tax liability, it can choose to establish a withholding account in that state.
Calculate and withhold Arizona income tax.
Calculate California income tax on the same wages.
If the California tax is greater, the employer withholds an amount equal to the differences
between the California income tax and Arizona income tax.
If the California tax is less than the Arizona tax, no California tax needs to be withheld.
TelecommutingEmployers should withhold income tax for the state in which an employee performs service.
The “convenience of the employer” rule
Double Taxation
1. Telecommuting days are normal work days.
Convenience of the Employer
2. The telecommuter’s office is a bona fide office.
The telecommuter must prove that:
A normal workday» Any day that the taxpayer performed the
usual duties of his or her job!» Responding to occasional calls or
emails, reading professional journals, or being available if needed does not constitute performing the usual duties.
Bona fide employer office» The office must meet either the primary
factor, or!» At least 4 of the secondary factors and 3
of the other factors.
The home office contains or is near specialized facilities.
The Multi-State Worker Tax Fairness Act
A state won’t be able to impose income taxes on compensation earned by nonresidents when they are physically outside of the state.
States won’t be able to say that time working at home is not normal work time unless the employer says it’s not normal work time.
Tax Management Multistate Tax Report
Learn the law in the telecommuter’s home state.
Learn how the tax department will treat the arrangement.
Telecommuting laws are likely to change significantly.
»Colorado!»Georgia!»MinnesotaMulti-State Tax Filing
If their state has an income tax, that is the state where they must file their tax return.
Know that every combination of states presents different situations.
They should do their nonresident state and/or part-year resident return first.
Then they should do their resident or home state tax return.
.compayroll-taxeswww./state-tax
Welcome to:!Payroll Update:!
Multi-State Taxation and Reporting!Q&A
With Larry Holmes
Thank you for joining us today!