Multi-State Taxation and Reporting Presented Thursday, June 20, 2013 1
1 Multi-State Taxation and Reporting Presented Thursday, June 20, 2013 ©2013 The Payroll Advisor BROUGHT TO YOU BY HRCI CreditRCH Credit To earn RCH, you must: • Stay on the webinar for the full 60 minutes • Be watching the webinar using your unique URL • Certificates will be delivered electronically to email that you used to register for this webinar • Sent to you no later than 7/20/13 How to ask questions… HRCI Credit About the Speaker 5 Vicki M. Lambert, CPP, is President and Academic Director of Vicki M. Lambert, LLC, a firm specializing in payroll education and training. Known as “The Payroll Advisor,” Ms. Lambert is Founder and Director of www.thepayrolladvisor.com, a website that provides unique and expert services for anyone dealing with the complexities and technicalities of the payroll process. As an adjunct faculty member at Brandman University, Ms. Lambert is the creator and instructor for the Practical Payroll Online payroll training program, which is approved by the APA for recertification credits. What Is Our Focus For Today? 6 List of all taxes required by states Income SUI SDI Local Following the IRS Code—where the states stand Supplemental Taxation Determining State Withholding Liability Resident Qualifications ©2013 The Payroll Advisor What Is Our Focus For Today? 7 Reciprocal Agreements Resident vs. Nonresident Withholding Allowance Certificates 4 Factor Test for SUI Handling SIT & SUI for Multistate employees ©2013 The Payroll Advisor State Income Tax 8 Most employers are required to withhold state income tax from employee’s wages Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington & Wyoming have no state income tax Tennessee does not require income tax withholding ©2013 The Payroll Advisor State Unemployment Insurance 9 State Unemployment laws are largely dictated by the Federal Unemployment Tax Act requirements States do vary in their tax structure States vary on taxable wage bases Employer rates vary not only by state but by industry Some states have employee tax ©2013 The Payroll Advisor State Disability Insurance 10 State program to provide income when an employee is unable to work due to illness or injury 5 states have mandatory SDI programs California, Hawaii, New Jersey, New York and Rhode Island (also Puerto Rico) Can be state plan or insurance plan ©2013 The Payroll Advisor Types of Disability Programs 11 California-State Plan Also allows self insured plans Employee funded—Percentage of taxable wage base Also has paid family leave included Hawaii State plan for unemployed workers or whose employers have gone bankrupt Private or self insurance plan otherwise Hawaii has workers paying ½ the cost up to 0.5% of employee’s weekly wages ©2013 The Payroll Advisor Types of Programs 12 New Jersey Private plans permitted if meet requirements Otherwise state plan Employer and employee funded Percentage of taxable wage base Has Family Leave Insurance New York Provided through state insurance fund, private insurance or self-insurance can deduct up to 60 cents per week for State Fund insurance premiums from employee’s wages Rhode Island State plan Employee funded Percentage of taxable wage base ©2013 The Payroll Advisor Are You an Employer In NY for TDI? 13 An employer who has had in New York State employment one or more employees on each of at least 30 days in any calendar year shall be a "covered employer" subject to the Disability Benefits Law after the expiration of four weeks following the 30th day of such employment (WCL §202). These 30 days of employment need not be consecutive days but must be work days of employment in one calendar year. ©2013 The Payroll Advisor Local Taxes 14 Some are paid by the employee, some the employer and some are levied on both the employee and employer. However, not all are deducted from the employee’s wages but are still owed by the employer. Most are based on the payroll in some way. May require determination of coverage such as county the employee lives in ©2013 The Payroll Advisor Could Include 15 Employer Expense Tax Chicago, Illinois License Fee Louisville and/or Jefferson County, Kentucky Earned Income taxes Wilmington, Delaware ©2013 The Payroll Advisor Could Include 16 Income Tax Maryland Counties and Baltimore City (Pennsylvania residents watch out too!) Detroit, Michigan New York, New York Ohio (can’t list them all—over 500!) County taxes Indiana—need I say more! ©2013 The Payroll Advisor Could Include 17 Payroll Tax Newark, New Jersey School District taxes State of Ohio Occupational Privilege tax Aurora, Colorado ©2013 The Payroll Advisor Could Include… 18 Transportation taxes Tri Metropolitan Transit District, Oregon Local Services Tax (Emergency and Municipal Services Tax) (Occupational and Privilege Tax) Pennsylvania Counties Workers Compensation Tax Washington State ©2013 The Payroll Advisor Could Include 19 New Jersey-New York Waterfront Payroll Tax General Business Tax for Nevada Metropolitan Commuter Transportation Mobility Tax (MCTMT)—Unless NY Court is Upheld ©2013 The Payroll Advisor Following the IRS Code 20 Majority of the states have adopted a policy that states the withholding requirements are the same as the federal income tax withholding CA, MS, NJ and NM have their own code Other states follow a version of the IRC The question is which version of the IRC ©2013 The Payroll Advisor States vs. IRC 21 The states can follow the current version of the IRC So if IRC changes, state changes automatically Some states follow the IRC but only as of a certain date. So changes made after that date are not valid in that state. State legislature must update the code while in session. Areas to watch: health insurance for nondependent children All states match federal but some exceed it—Watch NJ Domestic partners and health insurance: federal taxes some states don’t ©2013 The Payroll Advisor States vs. IRC 22 The states can follow the current version of the IRC. These include: Alabama, Connecticut, Delaware, DC, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Missouri, Montana, New York (with exceptions), North Dakota, Oklahoma, Rhode Island, and Utah So if IRC changes, state changes automatically ©2013 The Payroll Advisor Some States Date the IRC (especially true due to recent legislative activities) 23 Some states follow the IRC but only as of a certain date. So changes made after that date are not valid in that state. For Example: January 2, 2013: Georgia, North Carolina and Virginia January 1, 2013: Idaho and Iowa March 23, 2012: South Carolina January 1, 2012: Arizona December 31, 2011: Maine and Oregon ©2013 The Payroll Advisor Some States Date the IRC (especially true due to recent legislative activities) 24 January 2, 2013: Arkansas-NEW Thru December 31, 2006: Kentucky—bill in leg to conform to 2012 April 5, 2010: Nebraska Jan 1, 2005: Massachusetts—watch for transit passes! After Jan 1, 2012 but before Jan 3, 2013: West Virginia—New January 2, 2013: Hawaii—New ©2013 The Payroll Advisor Dating the IRC 25 Jan 1, 1997: Pennsylvania (may have sections with different dates) Or they pick a specific time frame or date: Minnesota: January 3, 2013 Vermont: Taxable year 2011 ©2013 The Payroll Advisor Supplemental Taxation 26 Supplemental wages are wages paid in addition to the employee’s regular wages. These include bonuses, overtime, accumulated sick leave payouts, severance pay, awards, prizes, retro pay increases and back pay States will use a certain percentage to tax or require aggregate method http://www.payroll-taxes.com/state-tax.htm Gives the supplemental rates ©2013 The Payroll Advisor Determining State Withholding Liability 27 State laws vary somewhat in their definitions of “employer” subject to withholding requirements. Some follow federal definitions while others have their own. Some common definitions include: Does business within the state Pays wages for services to one or more persons whose services are rendered in the state Maintains an office or other place of business within the state Derives income from, or takes orders within the state ©2013 The Payroll Advisor Definition of Resident 28 Usually set forth in the state’s income tax laws Generally: someone who maintains a place of abode or live in the state for a certain period of time Oklahoma: A resident is anyone domiciled or who maintains a permanent place of abode in Oklahoma and spends more than a total of seven months of the taxable year in the state. ©2013 The Payroll Advisor Reciprocal Agreements 29 A number of states have entered into reciprocal agreements with other states to ensure that employees who work and reside in different states are not subject to multiple withholding or taxation The agreements specify that employers should withhold income taxes on a nonresident employee’s wages only for the worker’s home state and that such employee’s wages are not subject to the income tax rules of the state where the wages were earned Watch out for local taxes usually do not apply There can be “special” agreements as well ©2013 The Payroll Advisor For Example: 30 IL has agreement with WI Resident of WI works in IL but does not want IL tax taken out—completes Form IL-W-5-NR—NO IL tax is withheld Employer may but IS NOT required to withhold for WI ©2013 The Payroll Advisor For Example 2: 31 WI has agreement with IL Resident of IL works in WI but does not want WI tax taken out—completes Form W220—NO WI tax is withheld Employer may but IS NOT required to withhold for IL ©2013 The Payroll Advisor Resident vs. Nonresident 32 Resident: generally must have state income tax withheld from all payments not specifically exempted, including wages for services performed outside the state Nonresident: compensation is subject to withholding only to the extent it is earned within the state Sometimes states will allow residents to use credit for other state against tax liability Example: CA and AZ ©2013 The Payroll Advisor Arizona Example 33 An employer must withhold Arizona tax from wages paid for services performed within Arizona regardless of whether the employee is a resident or nonresident of Arizona. However, there are two exceptions to the general mandatory withholding requirements for nonresident employees temporarily performing services for their employer in Arizona. Although a nonresident employee may be exempt from Arizona income tax withholding, the employee may be required to file a nonresident Arizona income tax return if the employee meets the filing requirement. ©2013 The Payroll Advisor Arizona… 34 An employer may not have to withhold Arizona tax from wages paid to a nonresident performing services in Arizona if: The employee is physically present in Arizona for less than 60 days in a calendar year for the purpose of performing a service that will benefit the employer; AND The employer is an individual, fiduciary, partnership, corporation or limited liability company having property, payroll and sales in Arizona, or of a related entity having more than 50% direct or indirect common ownership. ©2013 The Payroll Advisor Arizona… 35 Additionally, an employer may not have to withhold Arizona tax from wages paid to a nonresident performing services in Arizona if the individual would be allowed an income tax credit for taxes paid to his or her state of residence under A.R.S. § 43-1096. This exemption applies to nonresident employees who are residents of, or domiciled in, California, Indiana, Oregon, or Virginia. ©2013 The Payroll Advisor Arizona Example that Meets the Criteria for not Withholding AZ SIT 36 Franks and Beans Inc. is based in CA. It is the common parent of Weiner Corporation. Franks and Beans does not have property, payroll and sales in AZ. Weiner does have property, payroll and sales in AZ. Larry, a nonresident of AZ is an employee of Franks and Beans. Larry performs services for Franks and Beans in Arizona for 55 days. ©2013 The Payroll Advisor Another Example: Nebraska 37 Nonresidents whose wages are subject to federal withholding and who work in Nebraska are subject to the same withholding on their entire wages as that used for Nebraska residents. ©2013 The Payroll Advisor Connecticut Example 38 Dec, 2009: Employers are not required to withhold Connecticut income tax from wages/compensation paid to nonresident employees for services performed in Connecticut provided said employees are assigned to a primary work location outside of Connecticut and work in Connecticut 14 or fewer days during a calendar year. --Still report ©2013 The Payroll Advisor Maine Example 39 Compensation for personal services performed in Maine as an employee is Maine-source income subject to taxation if the nonresident taxpayer is present in the state performing personal services for more than 12 days during that tax year and directly earns or derives more than $3,000 in gross income during the year in Maine from all sources. ©2013 The Payroll Advisor Maine Example 40 Performance of the following personal services for 24 days during a calendar year is not counted toward the 12-day threshold: personal services performed in connection with presenting or receiving employment-related training or education; personal services performed in connection with a site inspection, review, analysis of management or any other supervision of a facility, affiliate or subsidiary based in Maine by a representative from a company, not headquartered in Maine, that owns that facility or is the parent company of the affiliate or subsidiary; personal services performed in connection with research and development at a facility based in Maine or in connection with the installation of new or upgraded equipment or systems at that facility; or personal services performed as part of a project team working on the attraction or implementation of new investment in a facility based in Maine. ©2013 The Payroll Advisor Employee Withholding Certificates—The States 41 Employers must verify if the state has an equivalent form to the IRS Form W-4 The States may: Not have their own form and use the Form W-4 Have their own form but allow Form W-4 to be used Require only the state form be used If they have a form it should be used ©2013 The Payroll Advisor Examples 42 Arizona: Form A-4 is required California: DE4 required if withholding is different from federal withholding Idaho: No state form ©2013 The Payroll Advisor States That Require/Recommend Use of Their Own Certificate Include… 43 Alabama: Form A-4 Arizona: Form A-4 Arkansas: Recommends AR-4EC but allows modified Form W-4 California: Requires DE 4 if withholding is different than federal Connecticut: CT-W-4 District of Columbia: D-4 Georgia: Form G-4 Hawaii: Form HW-4 Illinois: IL-W4 Indiana: WH-4 ©2013 The Payroll Advisor States That Require/Recommend Use of Their Own Certificate Include… 44 Iowa: Iowa W-4 Kansas K-4 Kentucky: Form K-4 Louisiana: Form L-4 or L4E should be used but accepts (mutually agreed upon) modified Form W-4—employer responsible to determine number of correct allowances Maine: Form W-4ME Maryland: Form MW 507 Massachusetts: M-4 required if state exemptions differ from fed Michigan: MI-W4 Minnesota: W-4MN Mississippi: Form 89-350 Missouri: MO W-4 New Jersey: NJ-W-4 or Form W-4 may be used ©2013 The Payroll Advisor States That Require/Recommend Use of Their Own Certificate Include… 45 New York: Accepts W-4 recommends Form IT-2104 North Carolina: Form NC-4 Ohio: Form IT-4 Vermont: Form W-4VT is recommended Virginia: Form VA-4 West Virginia: WV/IT 104 Wisconsin: WT-4 if state exemptions differ from fed ©2013 The Payroll Advisor States That Have No Form Include… 46 Colorado Delaware: Has Form SD/W4 for calculating only use Fed W-4 “For Delaware Purposes Only” Idaho Montana Nebraska New Mexico North Dakota Oklahoma Oregon Pennsylvania Rhode Island South Carolina Utah ©2013 The Payroll Advisor States That Use Special Form 47 Example: Pennsylvania Local Earned Income Tax Residency Certification Form: DCED-CLGS-06 For more info on tax go to http://www.newpa.com/node/6747 Example: for military spouses or employee’s using reciprocal agreements or claiming exempt ©2013 The Payroll Advisor Making the Determination on Taxation 48 Based on all we have covered the employer then determines the income tax withholding Best and easiest way is to T-account it State Working Rules for this state for a nonresident working here including reciprocal agreements State Living Rules for when a resident from this state works in another state including any reciprocal agreements ©2013 The Payroll Advisor Guidelines—Employees Working in 2 or More States 49 Still using the rules just discussed as to resident and nonresident etc. Some states provide guidelines for computing the allocation of withholding liabilities when employees work in more than one state There are three commonly approved formulas Volume of business ratio Time Basis Mileage Basis ©2013 The Payroll Advisor Volume of Business Ratio 50 Where an employee’s compensation depends directly on the volume of business transacted by that employee tax withholding attaches to that portion of the wages determined by ratio of volume of business transacted within the jurisdiction to the total volume of business transacted by the employee ©2013 The Payroll Advisor Time Basis 51 Where an employee is paid on a daily, weekly or monthly basis, tax withholding attaches to that portion of the employee’s pay determined by the ratio of working hours within the taxing jurisdiction to the total working time Example: Human Resources Manager paid on salary ©2013 The Payroll Advisor Mileage Basis 52 Where an employee is paid on a mileage basis, tax withholding attaches to that portion of the employee’s pay determined by the ratio of actual mileage within the taxing jurisdiction to the employee’s total mileage Example: Delivery driver just passing through ©2013 The Payroll Advisor Form W-2 Reporting Example: Connecticut 53 Gross wages means the sum of wages paid to all your employees regardless of where they work. The amount of gross wages you report on Form CT-941 for a calendar quarter must correspond with the amount reported on Federal Form 941 for that quarter. ©2013 The Payroll Advisor Connecticut Example Cont… 54 Gross Connecticut wages means the sum of: All wages paid to resident employees. Connecticut wages paid to resident employees are wages paid to resident employees regardless or where their services are performed. The amount of Connecticut wages paid to a resident employee will generally equal the amount of the employee’s wages for federal income tax withholding purpose. ©2013 The Payroll Advisor Four Factor Test for SUI 55 The states have adopted uniform rules to help them determine which state has the right to claim coverage of employees who work in two or more states for an employer. Employers consider the following four factors in successive order: Localization of services Base of operations The place of direction or control Place of residence ©2013 The Payroll Advisor Localization of Services 56 Services performed partly within and without the state will be covered by state law if the work performed outside the state is incidental to the work performed in the state. Incidental means transitory or temporary or isolated instances or transactions ©2013 The Payroll Advisor Example 57 Localization of Services: A payroll clerk normally works at the company’s headquarters in Georgia. Due to the acquisition of a firm in Alabama the payroll clerk is sent to that state for three months to change over the payroll system. Georgia retains jurisdiction even during the period the payroll clerk is working in Alabama. ©2013 The Payroll Advisor Base of Operations 58 If a worker normally or regularly works in two or more states the employee’s services can’t be said to be localized in one state. The next best claim to jurisdiction is the state where the employee performs some services and in which the base of operations is located Base of operations means the place where employees report for work or customarily return to ©2013 The Payroll Advisor Example 59 Base of Operations: A New York based company employs a regional sales manager to cover the states of PA, NJ and MD. The sales manager works out of an office in PA and divides his time fairly evenly among the three states. His activities are directed and controlled from the New York office. Pennsylvania has jurisdiction since the sales manager’s services aren’t localized in any one state and the base of operations is in PA. ©2013 The Payroll Advisor Place of Direction or Control 60 If the prior two tests aren’t applicable then the employer goes to the next best claim of jurisdiction which is the state in which the employee performs some services and which is the place of direction or control The determinant is the place of immediate or potential control even if the control is exercised only rarely ©2013 The Payroll Advisor Example 61 Place of direction or control: A salesperson covers the DC metropolitan area including parts of DC, VA and MD. The salesperson has no primary base of operations and is under standing orders to call in at least daily to the company headquartered in DC. DC has jurisdiction in this instance since services aren’t localized, no primary base of operations and the salesperson receives direction and control from the DC office ©2013 The Payroll Advisor Place of Residence 62 If the prior three tests don’t establish jurisdiction the state of jurisdiction becomes the one in which the employee both performs some services and maintains a place of residence ©2013 The Payroll Advisor Example 63 Place of Residency: An equipment manufacturer in Detroit has an employee who supervises equipment installations and handles complaints from customers in IN and OH. The employee has no particular place of operations but lives in Ohio. The state of jurisdiction is Ohio. ©2013 The Payroll Advisor Reciprocal Coverage Agreements 64 Most states subscribe to the Interstate Reciprocal Coverage Arrangement Permits employers to cover services in a single state by election of the employer All services will be covered in any state either in which any part of the services are performed, the employee resides or where the employer maintains a place of business States accept and pay contributions on each other’s behalf to assure that services provided by multistate employees are not covered under more than one state ©2013 The Payroll Advisor Example 65 A construction engineer who works for a Texas firm on a job in New Mexico for four months and who then goes to CA for six months on a job might be covered under both New Mexico and California laws. Under the interstate reciprocal arrangement, the Texas firm could elect to cover all the services performed by the engineer under Texas law ©2013 The Payroll Advisor Fringe Benefits 66 Nothing changes in paying fringe benefits in terms of taxation Common mistake – taxing where the employee lives regardless of where money is earned It is the same as paying wages—State where “fringe benefit” is earned determines taxation Good example is domestic partnership health insurance—most states follow federal some do not ©2013 The Payroll Advisor Fringe Benefits 67 Section 125 plans do vary from state to state for SUI and must be determined on a case by case basis—usually by your payroll software But for SIT just PA and NJ do we need to watch out ©2013 The Payroll Advisor Useful Links 68 payroll-taxes.com: lists each state for withholding, local taxes, reciprocal agreements, SUI and SDI http://www.payroll-taxes.com/state-tax.htm ©2013 The Payroll Advisor What We Covered Today… 69 List of all taxes required by states Income SUI SDI Local Following the IRS Code—where the states stand Supplemental Taxation Determining State Withholding Liability Resident Qualifications ©2013 The Payroll Advisor What We Covered Today… 70 Reciprocal Agreements Resident vs. Nonresident Withholding Allowance Certificates 4 Factor Test for SUI Handling SIT & SUI for Multistate employees ©2013 The Payroll Advisor Are There Any Questions? 71 HRCI CreditRCH Credit To earn RCH, you must: • Stay on the webinar for the full 60 minutes • Be watching the webinar using your unique URL • Certificates will be delivered electronically to email that you used to register for this webinar • Sent to you no later than 7/20/13 How to get the slides… HRCI Credit MORE 2013 RCH WEBINARS Travel Pay June 25, 10am PST Fringe Benefits Blitz Part 1: Section 132 and Beyond July 3, 10am PST How Can Ascentis Help Me? 75 Paystub viewing, W-2 generation, & tax simulation too Quick and easy check generation Reporting Wizards allow you to create and access standard or custom reports in real time Dedicated expert payroll support Interfaces with 401(k) providers and accounting systems 76 www.Ascentis.com info@ascentis.com 800.229.2713
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