Originally published in State Tax Notes on November 12, 2012.
State and local withholding tax laws are often described as a patchwork, allowing only the most sophisticated and diligent employers to approach full compliance. If enacted, the federal Mobile Workforce State Income Tax Simplification Act would provide much needed uniformity for employers and ultimately increase compliance for taxing authorities by establishing uniform state-level thresholds for employer withholding for nonresidents and personal income tax filing obligations for nonresidents. However, the federal withholding legislation will not resolve all state (or local) withholding tax questions. Thus, employers will continue to struggle with compliance for state and local employment taxes, including wage and non-wage withholding for personal income taxes.
Although the business community (and many state administrators) remain hopeful that Congress will enact the mobile workforce act and greatly foster state withholding tax compliance, employers will have to analyze their state withholding tax obligations regarding many other benefits or payments such as nonqualified stock options, deferred compensation, separation payments, retirement payments, and other compensation for services such as accrued vacation payments. Employers will continue to evaluate worker classification questions, both at the employee and employer levels, for various state and local employment tax purposes. This A Pinch of SALT highlights these thorny questions that many employers face, and will continue to face, beyond enactment of the mobile workforce act.
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