The U.S. House of Representatives approved the “Mobile Workforce State Income Tax Simplification Act of 2017” (H.R. 1393) on June 20, 2017. H.R. 1393’s purpose is to limit the authority of states to tax certain income of employees for employment duties performed in other states outside their state of residence.
State taxation of wages or other remuneration earned by an employee would be limited to: 1) the state of the employee’s residence and 2) the states(s) in which the employee is present and performing duties for more than 30 days during the calendar year in which the wages or other remuneration is earned. An employee is considered present and performing employment duties within a state for a day if the employee performs more of the duties within such state than in any other state. If an employee performs employment duties in a resident state and in one non-resident state during a day, such employee is considered as having employment duties in the non-resident state.
For determining penalties related to an employer’s state income tax withholding requirements, an employer may rely on an employee’s annual determination of time expected to be spent in the state(s), absent instances of fraud or collusion. If the employer maintains a time and attendance system that tracks where the employee performs duties on a daily basis, such system shall be used instead of the employee’s own determination. The time and attendance system would require the employee to record the work location on a contemporaneous basis for every day worked outside the state where duties are primarily performed. The system must also be designed to allow the employer to allocate employee wages for income tax purposes among all states in which employment duties are performed.
If enacted, H.R.1393 would take effect on January 1 of the second calendar year that begins after the date of enactment.
This Act is designed to reduce the administrative burden that currently exists for employers and employees that work in multiple states. In addition, it provides a de- minimis threshold that could potentially eliminate the state filing requirement for smaller-scale projects and provide a uniform standard at the state level which currently does not exist.