After floods, hurricanes, earthquakes and other natural disasters, the last thing on people’s minds may be payroll or tax issues, but employers affected by disasters and those responding to disasters should ensure that they are in compliance with multistate withholding regulations.
This year, several states have passed legislation exempting out-of-state employees responding to disasters from in-state withholding. Disaster-recovery work includes but is not limited to repairs, renovation, building or other activities related to infrastructure that was damaged by the disaster.
Because disaster work employees often are nonresident employees working in states that may not have reciprocal agreements, employers can be tripped up the employees’ movement, which can trigger nexus or a business connection for the company in that state. To ease the burdens on disaster-recovery companies, several states have carved out income tax withholding exemptions for nonresident employees doing disaster-recovery work in state as well as for their employers.
Delaware was one of the first states that passed such legislation, which was effective July 1, 2013. Nonresident employees who are in Delaware performing disaster-recovery work are not considered to have established sufficient presence to trigger Delaware income tax withholding. An out-of-state employer must submit a form that states it is in Delaware only for disaster-related work. Maryland also passed similar legislation that went into effect June 1, 2013.
Several more states have such legislation going into effect this year, such as South Carolina. Effective June 2, 2014, out-of-state businesses that perform disaster-related work within South Carolina may not be considered to have established a level of presence that would require businesses to register, file or remit state or local taxes or have employees subject to state licensing or registration requirements.
Out-of-state employees who perform disaster-recovery services in South Carolina also are not considered to have established residency or presence in the state that would require their employer to file and pay income taxes or be subject to tax withholding or file and pay any other state or local tax resulting from their performance during a disaster.
Effective Aug. 28, 2014, Missouri does not require employers to withhold state income tax from nonresident employees who are present in the state performing disaster-recovery work during a disaster period.
Disaster-work employees also are exempt from Indiana state income tax withholding, effective July 1. Georgia passed legislation effective this year – June 1 – and, effective Dec. 31, employers cannot withhold Arizona income tax from nonresident employees who are in the state performing disaster recovery work. In addition, nonresident employees who are in Colorado performing disaster recovery work are exempt from state income tax withholding, effective Jan. 1, 2015.
As for employers directly affected by disaster situations, states will often extend income tax withholding filing and payment deadlines. Applying for these extensions can be as easy as writing the disaster at the top of withholding forms, but states can also require more complex application processes.
California employers in Napa, Solano and Sonoma counties affected by the Aug. 26 earthquake may request a 60-day extension for filing income tax withholding forms and depositing funds, the California Employment Development Department said. Employers must submit the request within 60 days of the due dates of the forms and deposits, the department said.
For more information, see Payroll Administration Guide.
By Allison M. Gatrone
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