This post was written by Ramon Tavares from Blackspark.
Are you tracking your travelers? The tax-man is, and many companies are unaware that they are putting themselves at risk under his watchful eyes. There are U.S. tax consequences when executives and employees travel to different states. And if companies don’t comply, they can find themselves in hot water.
Companies may not think an employee traveling to another state for work could put them at risk, but the reality is that a single trip out of state could cause problems with the tax-man. This is because the destination state has a right to tax income (i.e. salary) earned within its borders, even if that income is earned by a non-resident. We’ve compiled the following information below to help you understand the issue and what you can do about it.
Why have I not heard about this before?
Increasingly, over the past several years, state authorities have been analyzing transactional data to easily identify which companies are coming to their states for business purposes. The transparency into state-to-state travel, coupled with a challenging economy, means states now have the capability and motivation to track down companies and force them to pay what they owe.
Let’s look at an example
Without going into too many layered details of the underlying tax rules, when one of your employees travels to a different state for business, the salary they earned on that day is taxable in that state.
Here is a simple example:
- John Smith lives in Texas and travels to California 20 days a year. His annual salary is US$150,000 per year and, in total, he works 240 days a year.
- So, for John Smith, he would be taxable in California for 20 days/240 days x $150,000 = US$12,500, based on his business travel.
How do these rules affect your organization?
As you are all too well aware, your payroll department withholds U.S. federal and state tax from your pay. Since John Smith is taxable in California because of his business travel, his payroll department may also be responsible to withhold California state tax from his pay when he travels and works in the state for business.
What are the financial consequences for your company?
In a nutshell, the financial consequences of not addressing these rules for the organization are:
- Payment of withholding tax owing in respect of travelers, plus…
- Penalties (up to 100% of withholding tax owing), plus…
So what can you do?
A good first step is to assess whether multi-state travel rules are financially significant to your organization.You can do this by discussing the topic with your tax service provider and determining if they have specific recommendations for your organization.
Another way to get started is with Blackspark. We’re a Concur App Center Partner and we have tools to automatically analyze and address these rules for you. Plus, our technology integrates directly with your Concur application.
About the Author: Ramon Tavares is the cofounder of Blackspark, a Concur App Center Partner. They specialize in payroll compliance for mobile employees. Find out how their app in the Concur App Center can help your business.
Photo credit: PhillipC