For people who have to travel for work and the employers who send them, widely differing state income tax laws can be both confusing and costly.
To straighten things out, the U.S. Senate is considering a bipartisan proposal to bring tax relief to those workers employed in more than one state.
The Mobile Workforce State Income Tax Simplification Act of 2012 (S. 3485) would establish a uniform national standard governing the withholding of state income taxes for nonresident employees.
Earlier this year, the U.S. House passed its own legislation, and both versions are now in the Senate Finance Committee for review.
Like its House counterpart, the Senate proposal creates a 30-day threshold and additional fair, administrable and uniform rules to help ensure that the appropriate amount of tax is paid to state and local jurisdictions without placing undue burdens on employees and their employers.
Currently, some states require a nonresident to pay income tax if he or she works in that state for just one day. Other states don’t collect tax until the nonresident works for a certain number of days in the jurisdiction.
Small businesses expend considerable resources just to figure out how much they must withhold for their traveling employees in 41 different jurisdictions. Employees are also confused about when their tax liability is triggered and in which states they must file a tax return.
Under the legislation, states would still remain free to set any income tax rate they choose, but the bill would nevertheless provide tax simplification.
Simplifying the tax law will allow workers and employers to predict their tax liabilities with accuracy and expend fewer resources researching the nuances of each state’s tax law.
CBIA is part of a national Mobile Workforce Coalition supporting the federal legislation.
For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or firstname.lastname@example.org.