Frequent flyers, take note: a pair of House and Senate bills could make recordkeeping a bit easier for you and your employers. While the legislation has a ways to go before becoming law, the House passed its bill in May 2012, as GovTrack.us notes – a promising start. (The Senate bill was referred to Committee in August 2012.)
This article in The Tax Advisor, an AICPA publication, explains that while an employee’s state of residence generally can tax the income he or she earns, so can other states in which the employee earns income. However, states don’t always exercise this right. Moreover, states differ in the requirements they place on employers to withhold state income taxes for their non-resident employees.
For instance, some states begin imposing taxes as soon as an employee starts working within their borders, while others wait until the employee’s earnings hit a certain floor, or he/she has worked within the state for a certain number of days. And, some states agree not to tax the earnings of nonresidents, if they live in another state with which the state has entered into a reciprocal agreement.
Both H.R. 1864 and S. 3485, both titled, “The Mobile Workforce State Income Tax Simplification Act of 2012,” would limit states’ authority to tax employees’ income when they work outside their state of residence, unless they do so for more than 30 days during a calendar year. The bills also exempt employers from tax withholding and reporting requirements when their workers are not subject to state income tax under these bills. (The bills exempt professional athletes, entertainers and other public figures who often work on a per-event basis.)
Should they pass, the bills would be good news for the rapidly growing percentage of mobile workers. A 2012 study, “Worldwide Mobile Worker Population 2011-2015 Forecast,” by research firm IDC predicts a worldwide mobile workforce of 1.3 billion by 2013. That’s up from one billion in 2010. To be sure, not all mobile employees work across state lines. However, the study confirms the growing importance of mobility in today’s workforce.
Along with limiting the power of states to tax earnings of nonresident workers, the bills also provide some guidance for employees and employers trying to determine just what they might owe in taxes to different states. For instance, employees are considered present and performing employment duties within a state for a day if they perform more duties there than in any other state. In addition, time spent in transit is not considered when determining which state can lay claim to employees’ income.
The House bill, introduced by Rep. Howard Coble (R-NC), has garnered 13 co-sponsors, including three Democrats, also according to GovTrack. The Senate Bill, introduced by Sherrod Brown (D-OH), currently has only one co-sponsor, Kay Hutchison (R-TX). GovTrack.us gives the House bill a 27 percent chance of being enacted, and the Senate bill a one percent chance of being enacted.
