Tax & Accounting Blog

Good News If You File a Non-Resident Tax Return

Blog, Business Tax, Federal Tax, Individual Tax, State & Local Tax, Tax November 17, 2015

A bi-partisan bill aimed at simplifying state income tax requirements for employees who work multiple days per year outside their state of residence is gaining momentum in Congress. The passage of this bill, known as the Mobile Workforce State Income Tax Simplification Act of 2015, would provide long-overdue relief for employers and employees facing inconsistent state income tax and withholding rules by prohibiting states from requiring most employees to file a non-resident tax return unless the employee is present and performing employment duties in the state for more than 30 days during the calendar year.

As it stands now, each state has different thresholds in place for the amount of time an employee must work in the state before needing to file a non-resident tax return. Requirements run the gamut from one day to 60 days, and in some cases, taxation is based on a specific amount earned while doing business in the state. By providing a universal 30-day de minimis exemption, compliance burdens and related costs for affected taxpayers will be significantly reduced, as will the amount of time spent on record-keeping.

The proposal also extends the same 30-day grace period to withholding requirements, thus significantly simplifying the payroll process for employers. To demonstrate the tangled web that these numerous and varied state requirements present for employers, one manufacturer testified before the Judiciary Committee earlier this year that it had to issue 50 W-2’s for a single employee in a single year. So, not only does this bill eliminate the compliance burden for individuals, but also for businesses. Longer term, these time and cost savings for employers, taxpayers and states could potentially fuel business investment, interstate commerce and increase worker productivity.

The bill may also generate clean-up for some states that have city returns that potentially have similar issues. Cities like New York, Detroit, etc. may follow suit for consistency.

The American Payroll Association (APA) has backed this bill for some time and the American Institute of CPAs (AICPA) has recently lent their support as well. The bill was passed by the House Judiciary Committee in June. The hope is that it can be voted on and passed by the Senate and signed into law in 2016, relieving those affected for the next calendar year. Stay tuned.