MTC Proposes Measures to Simplify State Income Tax Withholding for Mobile Employees

The Multistate Tax Commission's (MTC) Executive Committee has approved a Model Mobile Workforce Statute which would limit an employer's obligation to withhold state income taxes when it sends employees into a state for a limited time. Under current law, many businesses face the burden of withholding another state's income tax from an employee's compensation when sending the employee into another state for business purposes, even for only a few days. This places cumbersome compliance requirements on employers. While Congress has approached the issue in H.R. 3359 and H.R. 2110 (Mobile Workforce State Income Tax Fairness and Simplification Act), neither bill came to a vote. The MTC addresses this problem by offering states a model law - the Model Mobile Workforce Statute - in order to simplify state income tax withholding obligations.

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The MTC Model Mobile Workforce Statute would excuse an employer from withholding out-of-state income tax from a nonresident employee's wages if the nonresident has no other sources of income within the state, the nonresident spends less than 20 days during the tax year in the state performing employment duties, and the nonresident's state of residence provides a similar exception. Under the model statute, the employee would also be exempt from individual income taxes on his/her income earned from the limited presence in the state. Certain employees are excluded, however, including professional athletes, professional entertainers, certain employees who are compensated on a per-event basis, construction workers and certain "key employees."

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otwithstanding the above, Ohio has already taken two measures to lessen an employer's withholding tax obligations for an employee temporarily present in the state. First, Ohio has entered into reciprocity agreements with its five border states (Indiana, Kentucky, Michigan, Pennsylvania and West Virginia), whereby Ohio agrees not to impose its income tax on residents of the other state working in Ohio, and vice versa...

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View Steven Dimengo and Richard Fry's insights in their entirety on the Ohio State Tax Blog site.

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