State Income Tax Withholding Requires
State-by-State Consideration, ASPM Members Told
There is no uniform national agreement on what constitutes
a temporary assignment, Bob Woodall, senior manager with KPMG’s
Employment Tax Practice told attendees Oct. 1 at the 14th
Annual American Society for Payroll Management Forum &
Trade Show, held in La Quinta, Calif., near Palm Springs.
The lack of agreement means that employers must decide on
state income tax withholding thresholds on a state-by-state
basis, Woodall said.
While forty-one states and the District of Columbia require
employers to withhold income taxes from the wages of employees
who reside within their borders, many of these states also
have withholding requirements for those who provide services
but do not live in the state. States vary greatly on withholding
thresholds and withholding exemptions. The thresholds, however,
“vary wildly:”
- In Georgia, withholding is not required if a nonresident
works in the state for not more than 23 days in the calendar
quarter, or 90 days in a year or if less than 5 percent of
the employee’s income is attributable to work in Georgia.
- In Oklahoma, nonresident employees receiving $300
or more in wages for work in the state in a calendar quarter
are subject to withholding.
- In Wisconsin, if the employer reasonably anticipates
that an employee’s wages will not exceed $1,500 in a
calendar quarter, then withholding is not required.
Many other states use a straightforward apportionment factor,
Woodall said, generally the number of days worked in the state
divided by the total number of days worked.
In any given state, the employers most likely to get audited
are the high profile ones, such as traveling circuses, Woodall
said.
The earnings associated with the withholding in various states
should be reported to the employee on Forms W-2, Woodall said.
Additionally, he said, employers may have to register as withholding
agents in jurisdictions where they do not normally do business.
Possible penalties for not withholding vary as much as the
withholding thresholds, Woodall said. In addition to the assessment
of tax, individual states assess penalties and interest for
the failure to withhold and pay personal income tax. Assessments
include civil penalties for failure to withhold, failure to
file a return, and failure to provide Forms W-2. Penalties
can range from 10 percent to 100 percent of the tax due, depending
on the state and whether the failure to file was due to willful
disregard. States may also impose criminal penalties, ranging
from a fine to imprisonment.
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