Working in another state? Avoid the Nexus-Tax Surprise With Prior Planning
If you work in locations outside of your home state, you could have a tax footprint that generates nexus in another jurisdiction. Your company could, therefore, be liable for collecting and remitting state and local tax on your behalf in those states. It sounds complicated, and it can be. Here is a little more information to help you better understand this requirement.
What is a nexus?
Basically, nexus is the means used by states to determine whether your company’s presence in a state generates the requirement to collect and remit sales taxes on sales to consumers in that state. The nexus rules vary state-by-state and have many differing factors that are measured to make the determination.
Entertainers and sports professionals, such as touring musicians, TV anchors, athletes, film crew, and more, are often caught in the nexus web of various state and local income taxes issues.
Withholding Obligations
What states have workday withholding requirements?
Ten states have workday withholding thresholds for nonresident employees, including:
Arizona
Connecticut
Hawaii
Illinois
Louisiana
New Mexico
New York
North Dakota
Vermont
West Virginia
Plus, six states have wage or income withholding thresholds for nonresident employees, including California, Idaho, Minnesota, Oklahoma, South Carolina, and Wisconsin. Additionally, Georgia and Maine have a combination of an income and work-day threshold.
What states offer relief from filing or withholding obligations?
Utah provides withholding relief if an employer can certify that it is not doing business in the state for more than 60 days during the calendar year.
Also, Oregon provides withholding relief if an employer can show that wages paid are $300 or less during the calendar year.
Finally, twenty-one states and the District of Columbia do not have any withholding thresholds based on workdays, wages paid, income received, or other criteria. Those states include:
Alabama
Arkansas
Colorado
Delaware
Indiana
Iowa
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Mississippi
Missouri
Montana
Nebraska
New Jersey
North Carolina
Ohio
Pennsylvania
Rhode Island
Virginia
Reciprocal Agreements
Reciprocal state agreements allow individuals to work in another state without having to file a nonresident income return. The agreements also relieve employers of their withholding obligations. They are typically made between neighboring states that share borders.
However, New York, Connecticut, and New Jersey are absent from the list. As a result, workers who live in one of those states and work in another must file nonresident income tax returns if they meet the filing thresholds.
Also, 24 states, including New York and California, require the filing of an income tax return if a nonresident’s income from state sources for the tax year exceeds:
· A specific filing threshold,
· The nonresident’s standard deduction, or
· The nonresident’s personal exemption.
To avoid double taxation, all states also allow residents to take a tax credit on their tax return for income taxes they paid to other states.
Don’t wait.
If you worked in another state this year, don’t wait until the last minute to review state and local income tax laws and nonresident filing requirements.
Get help!
There is nothing simple about this process. With the different requirements throughout the country, it can be frustrating to try to determine what does and doesn't apply to you.
The best thing you can do is talk to a tax expert, like the team at LMJ CPAs, who can help you process the numbers and requirements before the tax filing deadline.
Give us a call today so we can help you manage your tax responsibilities.