Federal legislation has been reintroduced in Congress that would allow all States to tax the wages earned by nonresident employees who are present and performing employment duties in the State for more than 30 days in a year [H.R. 1864]. Sounds ok so far right? Read on.
Nonresident taxation rules are not currently uniform across states. Some states tax nonresidents if they perform one day of service in the state. Hawaii, on the other hand, doesn’t require withholding if services aren’t performed in the State for more than 60 days during the year. The new legislation would reduce some of the complexity in these rules. Reducing complexity? Since when has the FEDERAL Government ever been capable of reducing complexity? Here comes the gotcha…
The legislation is called the “Mobile Workforce State Income Tax Simplification Act of 2011.” The bill would allow a nonresident State to tax all of the wages and remuneration earned by the employee in that State from day one once the employee reaches the “more than 30 day threshold.” The employee’s earnings would also be subject to taxation in his resident State. The provisions of the bill would not apply to professional athletes and entertainers, and to “certain public figures,” who are defined as “persons of prominence who perform services for wages or other remuneration on a per-event basis, provided that the wages or other remuneration are paid to such person for services provided at a discrete event in the form of a speech, similar presentation or personal appearance.” So if you work in Colorado for 4 months, get laid off, move to Wisconsin and work the last six months of the year you could be taxed for ALL of your income earned that year in BOTH states instead of a prorated amount based only on the time in each state. Sounds simple to me but also very expensive.
Since the mechanics of the bill are identical to a bill issued in 2009 that never came to a vote in the House or Senate it sounds like a good time to call your representatives and let them know you thoughts. The bill would take effect on Jan. 1, 2013, if it is signed into law.