House passes legislation protecting workers traveling to other states

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Recognizing a nationwide problem that stems from “[a] patchwork of complicated nonresident income tax laws,” the group Mobile Workforce Coalition (Coalition) set out to “protect America’s traveling workforce.” The Coalition collaborated with members of Congress and hundreds of supporting organizations, like Abercrombie & Fitch Co., and the Societies of CPAs in California, Florida, Michigan, New York, North Carolina, Ohio, and South Carolina, among others, to pass HR 2315. Also known as The Mobile Workforce State Income Tax Simplification Act (the Act), the House approved it with bipartisan support on September 21, 2016. The next step is for the Senate to take up the companion bill, S 386.

The Act simplifies and streamlines the patchwork system, and makes it easier for both employers and employees to comply with and pay nonresident state income taxes when they travel for work. More specifically, the Coalition explains that the Act does the following:
  • Provides for a uniform, fair, and easily administered law, helping to ensure that the correct amount of tax is withheld and paid to the states without the undue burden that the current system places on employees and employers.
  • Provides a uniform 30-day threshold before the liability attaches and withholding is required. 
  • After 30 days, existing state laws will apply. Consistent with current law, the Act provides that an employee’s earnings are subject to full tax in his or her state of residence. Additionally, an employee’s earnings would be subject to income tax in the state(s) in which the employee is present and performing duties for more than 30 days during the calendar year. 


What this means is that nonresident employees who visit a state and perform employment duties for more than 30 days during a calendar year are subject to tax – and employers are required to withhold taxes – in the nonresident state from the commencement of the duties performed by the employee in the nonresident state. And as under current law, nonresident employees who visit a state for longer than 30 days, and are therefore subject to that state’s nonresident filing and withholding rules, will still be able to take a credit against their resident state personal income tax liability for amounts paid to other states.

Although the Act applies to many workers, it excludes from its protections athletes, entertainers, and certain public figures.

The Coalition points out that this was done in order to minimize revenue dislocations among the states. In addition, “[g]iven their high profiles and public calendars, there is currently a relatively high degree of compliance for these individuals with state nonresident personal income tax laws.” 

Impact on individual states

Earlier this month, we described the situation that will result from New Jersey Governor Chris Christie’s termination of that state’s reciprocity agreement with Pennsylvania. The deal excused employers in Pennsylvania and New Jersey from withholding income tax from employees who live in one state but work in the other. When it comes to an end on January 1, 2017, these employees will be subject to more onerous tax filing requirements, and will expose some workers to a greater tax burden.

The Coalition noted that the Act will not impact these kinds of reciprocity agreements. This is because reciprocity agreements offer a “365-day safe harbor,” as opposed to the 30-day threshold described above contained in the Act. 

As for its impact on state coffers, the Act is expected to result in a change in tax revenues of less than one-hundredth of one percent (0.01 percent), even if some states experience slightly higher or lower revenues. The Coalition asserts that in no state would revenues be reduced more than seven-hundredths of one percent (0.07 percent), and that the total net fiscal impact on all states is estimated to be less than $50 million.

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