What are State Tax Implications for Traveling Employees?
There was a time when interstate business travel was much easier than it is now. Today, states have figured out that increasing and enforcing tax implications — from tax revenues to noncompliance penalties — can result in more money for their states.
To comply with these new and complicated state tax regulations, organizations need to enhance their processes and increase their understanding of where travelers are, how long they’ll be gone, and the type of work they’re doing. Not just in the U.S., but globally.
However, existing processes for understanding an organization’s travel footprint are inefficient. This can result in inconveniences for business travelers, complexity for travel and finance managers, or bigger business implications like fines.
Are employers required to withhold out-of-state taxes?
That depends. The rules vary for withholding income tax on employees who temporarily travel outside of their resident state for work. This requires payroll managers to navigate different filing rules for all states, territories, and hundreds of municipalities.
For instance, more than half of states that have a personal income tax require employers to withhold tax from a nonresident employee’s wages beginning with the first day that employee travels to their state for business. Other states have a threshold that must be reached before income tax is withheld for nonresident employees. In some cases, employees could also be legally required to file an income tax return in every state they travel to for work — even if just for one day.
State income tax liability triggers
States that impose income tax on the first day nonresidents work in their state:
- New Jersey
- North Carolina
- Rhode Island
States that impose income tax on nonresidents after a state-specific threshold is reached (varies by state):
- New Mexico
- New York
- North Dakota
- South Carolina
States that do not impose income tax:
- New Hampshire
- South Dakota
What does this mean for your business?
The only way to ensure that employees comply with state- or country-specific tax and immigration requirements is to implement a fully integrated solution into the travel booking workflow.
The EY Travel Risk and Compliance integration with SAP Concur solutions helps reduce risk. It helps organizations assess work authorization and visa needs before employees book travel, and tracks tax and payroll requirements triggered by the employee while on location.
To learn more about this integration and the implications of cross-border travel, download our whitepaper: Global Business Travel Tax & Immigration: Mitigating Complexity and Risk Amid Brexit, Travel Bans and Trade Wars.