HR and mobility professionals are long accustomed to managing the potential tax intricacies surrounding global business travel and assignments. It may come as a surprise that mobile domestic workers can encounter similar complexities when conducting business outside of their resident state in the U.S.
In some cases, working outside your state of residency, even for as little as one day, can trigger reporting, withholding, and filing requirements in the host state. State revenue agencies are under pressure to increase revenues, and scrutinizing business travel has become a target area. The Mobile Workforce State Income Tax Simplification Act of 2012, which has passed the House and is awaiting Senate action, clarifies and simplifies the current environment.
Until the final legislation is passed, the difficulties in reviewing and understanding the multitude of regulations, combined with the costs involved in tracking and collecting needed data, have led many organizations to be non-compliant. Failure to comply with the appropriate payroll reporting and withholding rules can result in tax assessments (and related penalties and interest) to the employee or company. Unexpected costs can lead to employee and business unit dissatisfaction. Further, headlines of company noncompliance may cause damage to an organization’s reputation.
Best practices to consider include the following:
- Develop a company domestic mobility policy that provides clear guidance to both management and employees concerning required reporting and withholding obligations. This includes consideration of supporting employees through help with annual tax return preparations and tax gross-ups to ensure they are not incurring additional tax liabilities due to work performed in nonresident state(s).
- Understand the rules for each non-resident state in which your company conducts business. Factors that affect reporting requirements vary depending on your company’s corporate structure, the activities performed in the workplace, the company’s relationship to the worker, and the worker’s personal tax residency.
- Track and manage workdays and provide access to this information to the mobility manager so that monitoring can occur on a real-time basis.
- Educate your business travelers and management as to the potential risks of ignoring reporting requirements. It is easier to obtain cooperation if the business requirements are known to all.