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Friday, May 18, 2012

Mobile Workforce State Income Tax Simplification Act Passed in House

On May 15, 2012, H.R. 1864, the Mobile Workforce State Income Tax Simplification Act of 2012, passed by voice vote in the House. It has since been referred to the Senate Finance Committee.  This legislation deals with a state tax issue where for uniformity purposes, Congress needs to step in to solve this. The congressional process on such bills is that in the House, it starts with the House Judiciary Committee and in the Senate, it is the Senate Finance Committee.

This legislation has been outstanding for several years with slight variations on how long a worker needs to be in a state before the state can impose income tax obligations on it and withholding on the employer. H.R. 1864 provides that a state may not impose income tax obligations unless the worker is a resident in the state or the "employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned."

There are a few exceptions, such as for professional athletes.

On May 25, 2011, the House Judiciary Committee held a hearing on H.R. 1864 - H.R. 1864, the "Mobile Workforce State Income Tax Simplification Act of 2011."

The problem necessitating a federal solution was noted in the May 2011 hearing (see above) and by statements made on the day of the House vote. For example, Congresswoman Lee (Tx) stated:

"The committee notes that while some states require an employer to withhold income tax on the first day of the employee's travel, others use a hybrid system of time spent and dollars earned to trigger withholding, requiring individuals who travel for work to track and comply with the income tax laws of up to 41 different states. For instance, a nonresident's income tax liability is triggered in New York the moment he or she earns wages in the state, but the employer's withholding requirement is not triggered until the 14th day of wage-earning. In Idaho, meanwhile, a non-resident's income tax liability is not triggered until after he or she makes $1,000 in wages in the state." 

While states and the Federation of Tax Administrators (FTA) were not completely supportive of the legislation, it appears to be the only way to get a solution for all states.  If the Multistate Tax Commission or FTA derived a uniform law, it is unlikely that all states would adopt it.  And with the mobile workforce growing, uniformity is even more important to employers and employees.

H.R. 1864 brings certainty and equity and transparency to the system on when states impose income tax obligations and employer tax withholding on workers. 

Prior posts:
What do you think? Should Senate Finance Committee pass and President Obama sign?


Anonymous said...

What I would like to bring to the forefront is the issue of complexity and compliance. I know first hand that the smaller employers that are working across multiple states frequently just ignore these laws due to the incredible complexity of the withholding and filing. Having done payroll for one of these smaller employers who has a huge mobile sales force, we ran off the RITA guidelines but not even in the order that they're suggested.

So I believe that this legislation would definitely reduce the complexity of income tax withholding in multiple states and the burdensome account acquisition process, and without having seen any other viable options, think that this legislation could certainly help the situation and improve compliance.

Naila Sharifova, CPA said...

It is about time. The state laws differ so much that small businesses are often unable to comply with the ever changing rules. This new law, if passed, may result in more compliance.

The Mobile Worker said...

I agree with all comments.