Payroll Update:! Multi-State Taxation and Reporting Presented by Larry Holmes
State taxation and reporting requirements as 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
YTHS Employees believe they only have to pay income taxes in the state where they live.»false
YTHS Employees assume the state tax rules are the same as federal tax rules.»false
YTHS Employees have to pay taxes to the state where their employer is located.»false
YTHS Employees, and some employers, think employees don t have to file a return in a reciprocal state.»false
YTHS Employees think if they live or work in a state that does not have an income tax, then they don t owe state income taxes.»false
Multi-State Withholding Responsibilities
Questions: 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?
The default rule: Withhold tax for the state in which services are performed.
States That Do Not Have Income Tax Withholding 1. Alaska! 2. Florida! 3. Nevada! 4. New Hampshire! 5. South Dakota! 6. Tennessee! 7. Texas! 8. Washington! 9. Wyoming
Withholding Rule No. 1 The first determination that must be made is where the employee lives.
2
Alabama
Arizona
California
Illinois
New Jersey
Withholding Rule No. 2 Reciprocity Withholding Rule No. 3 Resident and nonresident taxation
A reciprocal agreement allows you to withhold only for the state where the employee is a resident. Reciprocal Agreement
Illinois» Iowa!» Kentucky!» Michigan!» Wisconsin Indiana Iowa» Kentucky!» Michigan!» Ohio!» Illinois» Pennsylvania!» Wisconsin
» Illinois!» Virginia! Kentucky» Indiana!» Michigan!» West Virginia!» Wisconsin» Ohio! 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!» Ohio!» Virginia!» New Jersey!» West Virginia Virginia» District of Columbia!» Kentucky!» Maryland!» Pennsylvania!» West Virginia West Virginia» Kentucky!» Maryland!» Pennsylvania!» Virginia» Ohio!
Wisconsin District of Columbia» Illinois!» Indiana!» Everybody» Kentucky!» Michigan
Withholding Rule No. 3 Resident and nonresident taxation An employee is a resident of 1 state but performs services in another state, and there is not a reciprocal agreement.
Withholding Rule No. 1 Determine the state of residency.
Exceptions:» Arizona!» California!» Georgia!» New Mexico!» Oklahoma!» Utah 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.
Connection NEXUS 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.
The convenience of the employer rule Telecommuting Employers should withhold income tax for the state in which an employee performs service.
Double Taxation
The telecommuter must prove that: 1. Telecommuting days are normal work days. 2. The telecommuter s office is a bona fide office. Convenience of the Employer
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.
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. The Multi-State Worker Tax Fairness Act
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!»Minnesota Multi-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.
www. payroll-taxes.com /state-tax
Welcome to:! Payroll Update:! Multi-State Taxation and Reporting! Q&A With Larry Holmes
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