What are State Tax Implications for Traveling Employees?

SAP Concur Team | Jan 2, 2020

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:

  1. Alabama
  2. Arkansas
  3. Colorado
  4. Delaware
  5. Indiana
  6. Iowa
  7. Kansas
  8. Kentucky
  9. Louisiana
  10. Maryland
  11. Massachusetts
  12. Michigan
  13. Mississippi
  14. Montana
  15. Montana
  16. Nebraska
  17. New Jersey
  18. North Carolina
  19. Ohio
  20. Rhode Island
  21. Vermont
  22. Virginia

States that impose income tax on nonresidents after a state-specific threshold is reached (varies by state):

  1. Arizona
  2. California
  3. Connecticut
  4. Georgia
  5. Hawaii
  6. Idaho
  7. Illinois
  8. Maine
  9. Minnesota
  10. New Mexico
  11. New York
  12. North Dakota
  13. Oklahoma
  14. Oregon
  15. South Carolina
  16. Utah
  17. Wisconsin

States that do not impose income tax:

  1. Alaska
  2. Florida
  3. Nevada
  4. New Hampshire
  5. South Dakota
  6. Tennessee
  7. Texas
  8. Washington
  9. Wyoming

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.