What are State Tax Implications for Traveling Employees?

Imagine a time when all work happened onsite at a business location within easy driving distance of your home – a simple time, to be sure. Today’s work reality is much more complex with workers in-office, remote, and everywhere in between. With more business travelers getting on the road again, some employees spend more time traveling than in any one office. 

And while you might think that managing travel-related taxes within the U.S. would be relatively straightforward, it turns out state-to-state tax codes are far from united. This creates issues for travelers and businesses alike. 

To comply with 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, when a company’s process for understanding its travel footprint is inefficient, it can cause inconveniences for business travelers, complexity for travel and finance managers, or bigger business implications like fines. 

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Are employers required to withhold out-of-state taxes?

Whether an employer needs to withhold out-of-state taxes depends on various factors. But if you have business travelers, it’s crucial to know where your company stands.  

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 example, 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. 

If your business travelers are wondering, “If I travel for work, where do I pay taxes?” The answer may not be simple. 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. 

Get the guide: Enhance your compliance and spend management with SAP Concur solutions 

How Do State Taxes Work for Business Travelers? 

If your employees travel out of state – or out of the country – it’s imperative to stay on top of tax compliance for your travelers. 

Remember that tax regulations are subject to change and it’s important to verify the latest rules for the locations where your employees travel for business. 

States That Impose Income Tax on Business Travelers 

The following states impose income tax on the first day nonresidents work in their state, so make sure you’re addressing tax compliance for any employee that travels to these places. 

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

And these states impose income tax on nonresidents after a state-specific threshold is reached. The threshold varies by state. 

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

States That Don’t Impose Income Tax on Business Travelers 

The following states do not impose state income tax on business travelers. But again, it’s always important to stay up to date on tax rules, as they’re subject to change. 

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

See: How Hybrid Work Raises Your Tax Risk and Complexity 

How Do You Stay Compliant with Business Travel-Related State Taxes? 

So, how can you ensure that your company complies with state- or country-specific tax requirements for traveling employees? You can start by adopting a fully integrated technology solution into your company’s travel booking workflow. 

Because it comes down to payroll teams to know — and navigate — state tax implications for traveling employees, consider choosing a solution that gives your team a comprehensive view of travel and spending, plus the ability to manage interstate payroll taxes. 

Look for a solution that enables your teams to handle multi-state and cross-border payroll tax compliance. Even better if it can automatically track tax and payroll requirements as the employee travels to different locations. 

For example, an organization using Concur Travel can also connect with an SAP Concur integration that makes it easier for businesses to comply with complex tax regulations.  

To learn more about how you can help your company better navigate tax complexities, download our whitepaper, A Finance Leader’s Guide to Tax Compliance.