United States

Federal: Mobile Workforce State Income Tax Simplification Act of 2015 Passes House

Sep 26, 2016
From KPMG TaxWatch

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On September 21, 2016, the ‘‘Mobile Workforce State Income Tax Simplification Act of 2015,” passed the U.S. House of Representatives by voice vote under a suspension of the rules. The bill, H.R. 2315, has widespread bipartisan support, as does S. 386, an identical bill pending in the Senate. Under, H.R. 2315 an employee will not be subject to payment of personal income taxes, and an employer will not be required to withhold on wages and other remuneration earned in a state, unless the employee (1) is a resident of the state, or (2) has been present and performing employment duties in the state for more than 30 days during the calendar year.  Once an employee exceeds the 30-day threshold, income tax withholding would apply to income earned as of the date the employee commenced performing duties in the state. The bill allows an employer, for purposes of determining penalties related to employer withholding or reporting requirements, to rely on an employee's annual determination of the time such employee will spend working in a state in the absence of fraud or collusion by such employee. However, if the employer has a time and attendance system that tracks an employee’s whereabouts, data from that system must be used in lieu of the employee’s determination.

H.R. 2315 clarifies that being “present in a state for a day” means that the employee performs a preponderance of his or her duties in that state during such day. If an employee performs employment duties in the resident state and one nonresident state during the same day, the duties will be considered performed in the nonresident state. The term “employee” is defined under the laws of the state where the services are performed; however, certain persons, such as professional athletes, entertainers and public figures, are specifically excluded from the definition of employee. If it becomes law, the Mobile Workforce Act would be effective on January 1st of the second year that begins after enactment

Similar legislation has been introduced in previous sessions of Congress. The bill is important because currently there is no uniformity among states with respect to when an employer’s obligation to withhold on mobile workers commences, or when a nonresident employee’s presence in state to perform duties triggers a personal income tax filing requirement. If adopted, the Mobile Workforce Act would likely ameliorate uncertainty for both employers and employees and would also preserve the ability of states to impose taxes on nonresidents that work for more than 30 days in a year within their borders. Please stay tuned to TWIST for further updates on the Mobile Workforce Act.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.