Most business owners do everything they can to prevent tax issues but it’s only possible to prevent what you know about. For example, some businesses may not be aware they are non-payroll tax compliant for workers who cross into other states to perform their duties. This unintentional error could trigger an employer audit.
A BusinessWeek article titled: “Workers Crossing State Lines Mean More Employer Audits: Taxes” reports that workers who perform their tasks in different states may expose their employers to additional tax liabilities as states seek to collect levies from nonresidents by increasing enforcement actions.
Payroll Systems Not Configured for Multi-Location Employees
According to the article, the tax problem most likely starts when payroll systems aren’t configured to track employee earnings for multiple work locations. This oversight can expose employers to tax audits from numerous states. Subsequently, employers who then fail to collect and pay taxes to appropriate jurisdictions for traveling workers generally get stuck with the tax bill.
Still, BusinessWeek reports that even with multistate tracking in place some employers receive complaints from traveling employees when they see wages and taxes for more than one state reported on their W-2 forms. Also, once an employer reports wages and taxes to more than one state, it essentially obligates the employee to file individual returns in those states. Note: BusinessWeek article contributor, Mary Hevener, a partner at Morgan, Lewis & Bockius LLP in Washington said she files tax returns in nine states.
The Long Road Ahead for Standardizing Multi-State Workers Rules
Nineteen states with income taxes have certain thresholds of time spent and money earned while working in their state. Twenty-two states technically subject workers to tax on the first day of travel in the state. Here are some examples of:
- New York generally doesn’t apply state tax for certain work activities performed inside its borders for 14 days or fewer in a year. The article points out that
- Georgia allows out-of-state workers to work in the state up to 23 days in a quarter without applying state taxes, or up to 5 percent of total compensation derived from in-state work.
However, it’s reported that other states have poorly explained rules on income allocations.
The article quoted Patrick Rehfield, a lawyer at Morgan Lewis who claims that several attempts have been made to standardize how multi-state workers are treated for state tax purposes. Lewis states that “under the Mobile Workforce State Income Tax Simplification Act, proposed in the past several congressional sessions, nonresidents would have to work at least 30 days in a state before becoming subject to out-of-state taxes.” Lewis continues, “The legislation, which would exclude professional athletes, professional entertainers and some public figures from the time frame, has encountered strong state opposition.”
Small Businesses Can Avoid Tax Audits by Hiring a Tax Professional
With the IRS laser-focused on small business tax compliance, and states looking to fill their coffers, the last thing a business owner wants to do is get audited and pay more taxes! A qualified tax professional can evaluate your business and make sure you stay on the right side of the taxing authorities because payroll tax issues are some of the most difficult and expensive to deal with.
The good news is that if you are a small business owner who currently has payroll tax problems or is facing a business audit, there is a solution to your problem. However, it’s important you contact a Certified Tax Resolution Specialist quickly to help protect you, your company and employees.
