Recognizing Tax Liabilities For Out-of-State Workers

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Employees who travel out of state for work may unwittingly expose employers to the payroll-related rules of the other states, speakers said June 10 in a webinar on mobile workforce issues sponsored by Bloomberg BNA and Ernst & Young LLP.

Employers may not understand other jurisdictions' taxing requirements and fail to apply them properly to mobile workers, which gives rise to state tax audits and assessments, said Peter Berard, senior manager in Ernst & Young LLP’s employment tax services unit in New York.

How taxes are applied to nonresidents working in a state vary, said Debera J. Salam, CPP, director of payroll information and process services at Ernst & Young in Washington.

Additionally, congressional legislation (H.R. 2315 and S. 386) that aims to standardize state tax treatment of out-of-state workers was met with enough resistance that passage was uncertain.

3 Types for Tax Status

In the meantime, employers should consider the state tax status of three types of workers: U.S. citizens and residents crossing state lines to work, nonresident aliens coming into states to work, and U.S. citizens and residents working abroad, said Kenneth Hausser, executive director in Ernst & Young's employment tax services unit in New Jersey.

Employees who telework from home in one state while company operations are based elsewhere also may be creating out-of-state tax liabilities beyond employment taxes for employers, said Kristie Lowery, principal with Ernst & Young's employment tax services unit in North Carolina.

States are using technology-assisted audits and cooperating with federal and other jurisdictions to flesh out noncompliance, Salam said.

The risk of noncompliance starts with unpaid withholding taxes but can escalate beyond penalties and interest to include possible criminal charges that can affect corporate officers, Berard said.

Other consequences include the possible loss of a state business license and the loss of reputation in markets being served, Berard said.

To participate in a survey on employee mobility, visit a special page sponsored by Bloomberg BNA and Ernst & Young.