session presentation - TSWB-apa

Report
Tennessee Statewide Payroll Conference
August 15, 2014
Withholding and Unemployment
Requirements for a Multi-State
Employee
Presented by J. Bryan Ray
LBMC Employment Partners, LLC
MORE THAN YOU EXPECT...
EVERYTHING YOU NEED
Withholding and Unemployment Requirements for a MultiState Employee
August 15, 2014
Presentation Outline
I.
II.
Introduction
State Income Tax Withholding Requirements and Issues
A.
B.
C.
D.
E.
Which State Must you Withhold?
Employees Working in Multiple States / Temporary Assignment
Reciprocity
Electronic Payments and Filing
State Withholding Year-End Processing Matters
III.
Local Withholding Tax Discussion and Issues
IV.
State Unemployment Insurance Requirements and Issues
A.
B.
C.
D.
V.
SUI / Taxable Wages / Contribution Rates
Employees Working in More than One State
Outstanding SUI Loan Balances
Employment Tax Acquisition Opportunities
Questions, Answers, and Discussion
State Income Tax Withholding Requirements and Issues
Which State Must you Withhold?
1.
1.
2.
3.
Basic Rule of Thumb – The State in which Services Are Performed.
Exception – DC only taxes residents.
Nexus = Business Connection (An office, store, factory, or simply
entering a state to make a sale or perform a service call)
If employer has nexus, the employer is subject to the withholding
rules of that state. This nexus is key in determining withholding
requirement based on employee’s state of residence.
Other Important Rules to Consider

Determination of Resident State

Is a Reciprocity Agreement in place between states?

Resident / nonresident taxation policies
Work Site Withholding Exceptions




De minimis time in state working or limited dollars earned
(sourced) from state
States that require withholding on first dollar and first day or
portion thereof: AL, AR, CO, DE, IA, IL, IN, KY, KS, LA, MD,
MA, MI, MN, MO, MS, MT, NE, NC, ND, OH, PA and VT
ID, NY, OK, OR, SC and WI have limits on dollars earned; AZ, CT,
NY, GA, HI, ME and NM have various day limits.
Check the state’s lowest personal exemption (PE) amount for state
tax return, or look to where the state starts its withholding tables
State Income Tax Withholding Requirements and Issues
RESIDENCY DEFINED
Most states have a two-pronged definition of residency,
that states someone will be a resident of a state by
either –

Being domiciled in the State, or

Spending more than a certain number of days in the
State.
The term “domicile” usually means the place where the
individual has a true, fixed permanent home and
principal establishment. “Domicile” usually means
the place the individual intends to return.
IMPORTANT
The definition of resident for income tax withholding
varies by state.
State Income Tax Withholding Requirements and Issues
RECIPROCITY
2.
An agreement between two states that allows an employer to withhold only for the
state of residence, as opposed to the state in which services are performed.
Please see specific state documentation and be mindful of specific state forms.
3.
Primary Reciprocity Agreement States
1.
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





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
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
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DC - Maryland, Virginia
Illinois - Iowa, Kentucky, Michigan, Wisconsin
Indiana - Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin
Iowa – Illinois
Kentucky – Illinois, Indiana, Michigan, Ohio, W. Virginia, Wisconsin
Maryland – DC, Pennsylvania, Virginia, and W. Virginia
Michigan – Illinois, Indiana, Kentucky, Minnesota, , Ohio, Wisconsin
Minnesota – Michigan and North Dakota
Montana – North Dakota
New Jersey – Pennsylvania
North Dakota – Minnesota and Montana
Ohio – Indiana, Kentucky, Michigan, Pennsylania, and West Virginia
Pennsylvania - Indiana, Maryland, New Jersey, Ohio, Virginia, and WV
Virginia – West Virginia, DC, Kentucky, and Maryland
West Virginia – Kentucky, Maryland, Ohio, Pennsylvania, Virginia
Wisconsin – Illinois, Indiana, Kentucky, and Michigan
State Income Tax Withholding Requirements and Issues
RECIPROCITY EXAMPLE
Employee lives in West Virginia. Employee performs
Services in Ohio, Pennsylvania, and West Virginia.


Withhold West Virginia because West Virginia has a
Reciprocity Agreement with both Ohio and
Pennsylvania.
Make sure employee completes and submits to
employer the proper paperwork that declares nonresidence in Ohio and Pennsylvania.
State Income Tax Withholding Requirements and Issues
RESIDENT / NON-RESIDENT TAXATION POLICIES





The determination of Residency is very important.
IMPORTANT – The state in which services are performed will
almost always require withholding from non-residents who come
into the state to work.
However, some states have “triggers” (number of days worked) in
regard to withholding for non-resident work in their states. For
example, the Arizona trigger is 60 days.
If an employer has nexus in the employee’s state of residence,
then the employer may be required to withhold the state’s income
tax (even if there is no work there) – in addition to the state in
which the employer is working.
If an employee does not have nexus, then employee likely not
required to withhold based on employee residence.
State Income Tax Withholding Requirements and Issues



Resident / Non-Resident Taxation with RECIPROCITY
Withholding EXAMPLE
Employee performs Services in Ohio and Pennsylvania.
Employee lives in West Virginia.
Employer is not required to withhold any state income tax.
Employee does not owe tax to Ohio or Pennsylvania due to
the reciprocal agreement with the West Virginia home
state.
Employee will owe tax to home state West Virginia, but the
employer is not required to withhold that tax because the
employer does not have nexus in that state.
State Income Tax Withholding Requirements and Issues
Electronic Filing and Payments
1.
2.
3.
4.
Opportunity - More and more states and locals are enacting laws or regulations
that allow and / or require employers to use electronic funds transfer for
depositing withholding tax. Most states require electronic payment, if deposits
reach a certain threshold.
Advantages –

Less risk of misapplied tax payments than paper checks.

Increased speed of Payroll and Payroll Tax Operations.

Compliance with ever-changing regulations.
Payment Methods – ACH Debit, ACH Credit, Internet filing.
Opportunity

Select payment method which best suits your environment.

Contact bank for ACH capabilities.

Complete enrollment process; follow-up as needed.

Document accomplishment.
State Income Tax Withholding Requirements and Issues
State Withholding Year-End Processing Matters
1.
2.
Complete Balancing of all State Forms W-2 to State Withholding
Returns and Payments during the Year.
State Annual Reconciliation Forms Forms due January 31 – CA, DC, KY, MS, OH, (IT-941),
PA, WI

Form due March 15 – NE

Forms due February 28 - All other state annual
reconciliations.
States that do not want W-2s – CA, IL, IA, NY, OK, OR
State W-2 Electronic / Magnetic Media Filing Requirements

3.
4.
Local Withholding Tax Discussion and Issues
1.
2.
States with Local Taxation – PA, OH, KY, IN, AL, MD, MO, MI, NY, CA,
CO, DE, IL, OR, WV
More to come
Pennsylvania – Earned Income Tax, School District Tax, Local Services Tax.
Pennsylvania Act 32. Residence versus Work Location comparison.
3.
Ohio – Withholding Tax, Ohio School District Tax
4.
Indiana – County Taxes – Residence Takes Priority.
5.
Opportunity – How can employers help ensure employees are compliant?
•
•
•
Ask employees living and working in above states ; document
results.
Include Questioning on New Employee Set-up forms.
Contact the local taxing agencies – Ask specific questions
(continued)
Local Withholding Tax Discussion and Issues
4.
5.
Opportunity – How can employers help ensure employees are compliant with
local taxes?
 If outsourcing your payroll, verify new employee processing
Useful Websites and Resources
 www.payrolltaxes.com
 www.americanpayroll.org/localtaxlinks.html
 Ohio Local Taxes
http://tax.ohio.gov/online_services/thefinder.stm - Ohio Local Tax
Finder.
Pennsylvania Local Taxes
http://munstatspa.dced.state.pa.us/FindLocalTax.aspx
Indiana Local Taxes
http://www.in.gov/dor/files/dn01.pdf
State Unemployment Insurance Requirements and Issues
SUI / Taxable Wages / Contribution Rates




Each state’s SUTA Wage base must be less than FUTA wage
base of $7,000.00
SUTA Wage Bases vary by state and may change annually.
SUI Wage Transferability – An employees SUI taxable wages for
one state may be applied toward the taxable wages of another
state, within the same year, as long as the employer is working
for the same employer (Louisiana and Minnesota are
exceptions).
Contribution Rates vary by employer, are recomputed each
year, and are determined by an employer’s “Experience Rating.”
Continued
State Unemployment Insurance Requirements and Issues
SUI / Taxable Wages / Contribution Rates
(continued)




Experience Rating Calculation Methods – Reserve Ratio, Benefit
Ratio, Benefit Wage Ratio, Payroll, Stabilization.
New Employer Rate
Successor Employers
Employee Contributions
• Alaska
• New Jersey
• Pennsylvania
1.
2.
3.
4.
State Unemployment Insurance Requirements and Issues
Employees Working in More than One State
FOUR DETERMINATION FACTORS
Are Services Localized? - If services performed outside the
state are merely incidental to services performed inside the
state.
Does Employee have “Base of Operations?” – A place where the
employee reports to or returns from work, has an office,
receives instructions from employer, receives mail, or keeps
business records.
Is there a “place of direction or control?” – An employer’s facility
from which it exercises immediate control over the
employees’ services (i.e. a Sales Office).
What is the “employee’s state of residence” - If none of the above
apply and employee performs some work there.
State Unemployment Insurance Requirements and Issues
Employees Working in More than One State
Localization of Services EXAMPLE
Performs most services in Wisconsin, directed from Illinois, based in
Wisconsin, performs temporary service in Indiana.
• Report unemployment to Wisconsin as most services are
performed in WI and services in IN are temporary / incidental
Base of Operations EXAMPLE
Services directed from Arizona, lives in California, based in Nevada, and
performs services in all Three States.
• Report unemployment to Nevada since services are performed in
more than one State and some of the services are performed in NV
where the base of operations is located.
State Unemployment Insurance Requirements and Issues
Many States now Have Outstanding Federal Loan Balances
In recent years, certain states have been unable to re-pay
outstanding Federal loans to fund State Unemployment
Insurance Programs. As a result, certain states lost a portion of
their Futa credit in 2013 and prior years and employers in these
states were subject to higher Form 940 FUTA liability.

2014 Potential FUTA Credit Reduction States –
AR, CA, CT, DE, GA, IN, KY, MO, NJ, NY, NC,
OH, RI, SC, WI
State Unemployment Insurance Requirements and Issues
Employment Tax Opportunities at Company Acquisition
• Apply for new Payroll tax accounts, if needed.
• Evaluate and discuss Successor / Predecessor potential
including:
 Transferring employee Futa and Suta wage bases.
 Transferring employee Social Security wage bases.
 Transferring favorable Suta experience rating from
acquired company.
 Above items could save your company $$$$$.
QUESTIONS
WAR STORIES
DISCUSSION
Thank you very Much
Hope you have had a
Great Summer!!
Bryan Ray
Director, Payroll Tax Outsourcing / Consulting
Services
LBMC Employment Partners
615-309-2400
[email protected]

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