The law would bring a welcome measure of compliance relief for both employers and traveling workers.
In June, the U.S. House of Representatives passed legislation to simplify state income tax rules for employees who travel across state lines. The Mobile Workforce State Income Tax Simplification Act of 2017, a bipartisan bill, has been introduced and reintroduced in Congress every year since 2006. Last year it passed the House, but failed to advance in the Senate.
This year, a bipartisan companion bill, S. 540, has been introduced by Democratic Senator Sherrod Brown of Ohio and Republican Senator John Thune of South Dakota.
The passage of either bill would be a welcome change for mobile employees and their employers, because it would simplify what is currently a patchwork of confusing and often inconsistent state laws governing income tax filing and payroll withholding for employees who work in states where they do not reside.
Under both bills, employees would only be subject to another state’s individual income taxes if they worked there more than 30 days per calendar year. An employee’s earnings would still be subject to full tax in his or her state of residence.
In some states, these obligations (employer withholding vs. employee filing) are mismatched because they apply using different thresholds. A federal law would likely eliminate uncertainty for both employers and employees and would also preserve the states’ ability to impose taxes on nonresidents that work for more than 30 days within their borders.
How we can help
Recently, there has been some indication this legislation may be rolled into the overall federal tax package this year. However, without a uniform law, the rules continue to vary by state. If you need help complying with your state withholding obligations, contact your state and local tax advisor. In the meantime, we will continue to monitor this legislation and will let you know the status and the key details of a potential new law.