States vary widely on treatment of nonresident employees working temporarily within a jurisdiction. Employers need to pay special attention to whether their employees travel outside their resident state and how long they spend in those states; otherwise, they may be caught out of compliance.
Generally, employers are to withhold tax on wages earned by nonresidents regardless of how many days are spent in the state; however, many states have certain thresholds of time spent and money earned while working in their state and many technically subject workers to tax on the first day of travel in the state.
For example, according to recent guidance released by the Colorado Department of Revenue, employers must withhold and remit income tax for nonresidents who perform services in Colorado for at least one day. Withholding is not required for those performing services in the state for less than one day, the department said in Colorado General Information Letter GIL-14-015.
The Colorado guidance is just one of the differing standards that states across the country use for determining nonresident taxation. Georgia and Arizona have more generous thresholds than states like Colorado. Georgia allows out-of-state workers to work in the state up to 23 days in a quarter without applying state taxes, or have up to 5 percent of total compensation derived from in-state work. Arizona has an even longer threshold of 60 days that an employee has to work in the state before employers are required to withhold Arizona income tax.
Hawaii also has a generous threshold and does not require withholding for nonresidents temporarily performing services in the state if the employee is paid for services within the state from an office outside the state of Hawaii, the regular place of employment is not in Hawaii and the employee is expected to be working in the state less than 60 days.
New York has a 14-day threshold with some exemptions for activity such as training or seminars. Employers are not penalized for failing to withhold state taxes on wages paid to nonresident employees performing services in New York if the employee does not work more than 14 days in the state, the employee is assigned to a primary work location outside the state, the employer reasonably expects that the employee will work in the state for up to 14 days a year and the employee's compensation is not a form of excepted compensation as listed in New York TSB-M-12(5)(I).
New Mexico has a similar amount of time as New York before it requires withholding: it does not require withholding from wages paid to nonresidents working in the state for 15 or fewer days in the calendar year.
Some states use the amount of income earned in the state to determine whether withholding is required for nonresidents. Oklahoma taxes nonresident earnings in excess of $300 in a calendar quarter for services performed within Oklahoma. As for Idaho, employers are required to withhold Idaho income tax from wages earned when nonresidents perform services within the state if the nonresidents earn more than $1,000 in a year.
Wisconsin has a wage earnings threshold as well. Wages paid a nonresident for services performed within Wisconsin are subject to Wisconsin withholding if the employer can reasonably expect that the employee's annual earnings in the state will exceed $1,500 and if there is no reciprocal agreement with the employee's home state.
For more information on state withholding requirements for temporary nonresidents, see Payroll Administration Guide's Multistate Withholding Requirements: State Comparison Chart.
By Allison M. Gatrone
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